How Does Invoice Finance Work? (Complete UK Guide for Businesses)

What is Invoice Finance?

Invoice finance is a way for UK businesses to unlock cash tied up in unpaid invoices. Instead of waiting 30–90 days for customers to pay, you receive up to 90% of the invoice value immediately from a lender.

The remaining balance (minus fees) is paid once your customer settles the invoice.

👉 If you’re looking to compare providers, visit: Invoice Finance Brokers

How Does Invoice Finance Work Step by Step?

1

You issue an invoice

You provide goods or services and send an invoice to your customer (e.g. £10,000 with 60-day terms).

2

You upload or submit the invoice

The invoice is sent to an invoice finance provider.

3

You receive an advance

The lender advances typically 70%–90% of the invoice value within 24–48 hours.

Example:
Invoice: £10,000
Advance (85%): £8,500
4

Your customer pays the invoice

The customer pays either:
- You (invoice discounting)
- The lender directly (factoring)

5

You receive the remaining balance

Once payment is received, the lender releases the remaining funds minus fees.

Example:
Remaining: £1,500
Fees: £200
Final payment: £1,300

Types of Invoice Finance Explained

Invoice Factoring

  • Lender manages your sales ledger
  • Customers pay the lender directly
  • Often disclosed to customers
  • Best for smaller or growing businesses

Invoice Discounting

  • You retain control of collections
  • Confidential (customers don’t know)
  • Suitable for established businesses

Selective Invoice Finance

  • Choose which invoices to finance
  • Flexible, no long-term contracts

Key Benefits of Invoice Finance

Improve Cash Flow

Access cash tied up in invoices instantly instead of waiting weeks.

Support Business Growth

Take on larger contracts without worrying about working capital.

No Need for Traditional Loans

Funding is based on your invoices, not your credit score alone.

Scales With Your Business

The more you invoice, the more funding you can access.

Costs of Invoice Finance (UK)

Typical fees include:

  • Service Fee: 0.5% – 3% of turnover
  • Discount Rate: 1.5% – 3% above base rate

Example: Real-World Scenario

A recruitment agency invoices £50,000 monthly.

Without invoice finance:

  • Waits 60 days for payment
  • Cash flow pressure

With invoice finance:

  • Receives £42,500 upfront (85%)
  • Pays staff and grows faster

Common Questions

Does it affect my customers?

Factoring: Yes (they pay the lender)
Discounting: No (confidential)

Is it a loan?

No. It’s an advance against your invoices.

How quickly can I get funding?

Typically within 24–48 hours after setup.

Do I need good credit?

Less important than traditional lending — focus is on your customers’ ability to pay.

Why Use an Invoice Finance Broker?

Going direct limits your options. A broker compares multiple lenders, finds better rates, matches you to the right structure, and saves time negotiating.

Compare Providers Here