Invoice finance

Turn unpaid invoices into working capital, so your cash flow keeps pace with the work you do.

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£5,000 to £2m+ for UK limited companies and LLPs
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What invoice finance is

Invoice finance lets a business borrow against the money its customers owe. When you raise an invoice, a provider advances a large share of its value, often up to around 80 to 90%, usually within a day or two. The rest, minus fees, is paid once your customer settles. As your sales grow, the amount available can grow with them, which makes it a flexible source of working capital.

It suits businesses that sell to other businesses on credit terms, such as manufacturers, wholesalers, recruitment agencies, logistics firms and professional services companies. It is less suited to businesses that are paid upfront or mainly sell to consumers. The two main types are factoring, where the provider manages your sales ledger and collects payment, and invoice discounting, where you keep control of collections and customers are often unaware.

What businesses use it for

Smoothing cash flow

Bridge the gap between delivering work and being paid, so wages, rent and supplier bills can be met on time even when customers take 60 days or more to pay.

Taking on bigger orders

Accept larger orders or new customers with confidence, knowing that cash will come in soon after you invoice rather than weeks later.

Paying suppliers sooner

Pay suppliers promptly, which can strengthen relationships and sometimes open up early settlement discounts that help to offset the cost of the facility.

Supporting growth

Because the facility is linked to your sales ledger, the amount available can rise as turnover increases, rather than needing a new loan each time.

How it works

1The facility is set up

The provider reviews your sales ledger, your customers and their payment history, then agrees a facility limit and the percentage it will advance against each approved invoice. Set-up often takes a few weeks.

2You raise invoices

As you invoice customers, you send the details to the provider. It advances the agreed percentage, typically within a day or two, so cash reaches your account without waiting for payment terms to run.

3Customers pay

When customers pay, the provider releases the remaining balance to you, minus its fees. With factoring, the provider chases payment. With invoice discounting, your own team carries on managing collections.

What lenders look at

Every lender has its own criteria, but these are the things they usually check.

Selling to other businesses on credit terms

Quality and spread of your customer base

Customer payment history and debtor days

Turnover and the value of your sales ledger

Company trading history and accounts

To use Loanleaf

UK limited company or LLP
Trading for 6 months or more
Annual revenue of £50,000+
Borrowing £5,000 or more

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Things to consider

Fees and charges

Providers usually charge a service fee, often based on turnover, plus a discount charge on money advanced. There may also be set-up, audit or minimum fees. Compare the full cost at your expected turnover, not just the headline rate.

Contract terms

Many facilities have a minimum term and a notice period, and leaving early can involve termination fees. Check how long you are committed for, what notice is needed and whether the facility covers all your invoices or selected ones.

Bad debt and guarantees

Most facilities are recourse, which means you carry the loss if a customer does not pay. Bad debt protection may be available at extra cost. Directors may also be asked for a personal guarantee or an indemnity, so read these terms carefully.

Invoice finance: questions and answers

What is the difference between factoring and invoice discounting?

With factoring, the provider manages your sales ledger and collects payments, so customers know it is involved. With invoice discounting, you keep control of credit control and collections, and the arrangement is often confidential. Discounting is usually offered to larger, more established businesses.

How much of each invoice can I receive?

Providers usually advance a large share of each approved invoice, often up to around 80 to 90% of its value, though this varies. The rest is paid to you, minus fees, when your customer settles the invoice.

Will my customers know?

With factoring they usually will, because the provider collects payment. With confidential invoice discounting, your customers deal with you as normal and may not be aware a facility is in place. Which option is available depends on your business.

Can I finance just some invoices?

Yes. Selective invoice finance, sometimes called spot factoring, lets you choose individual invoices or customers to finance rather than your whole sales ledger. It can suit occasional needs but may cost more per invoice.

Is invoice finance a loan?

Not in the traditional sense. Rather than borrowing a fixed sum, you receive an advance against money your customers already owe. The amount available rises and falls with your invoices, and repayment comes mainly from customers paying.

How can Loanleaf help?

Loanleaf is an introduction service, not a lender or broker, and we don’t give advice. You answer one short form about your company and what you need, and we match you with a specialist finance broker who works with invoice finance. It’s free to use and there’s no obligation to go ahead. The broker will explain any fees of their own.

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