The absolute beginner’s guide to invoice finance


Invoice finance is rapidly increasing in popularity as more and more businesses realise the benefits of unlocking the working capital tied up in their sales ledger.

But what is invoice finance, how does it work and who could benefit from utilising this funding option?

Our absolute beginner’s guide to invoice finance aims to answer all of these questions and more.

We hope you find it useful.

What is invoice finance?

Invoice finance is a flexible funding solution which releases cash otherwise tied up in outstanding customer invoices, allowing businesses to bridge the cash flow gap commonly associated with trading on credit terms.

Typically, through invoice finance you will be able to release up to 90% of an invoice’s value within 24 hours of its issue.

Then, once the customer has made payment, the remaining balance is paid to you, minus fees.

Whilst there are numerous variations of invoice finance, the two most common solutions are invoice discounting and factoring.

How does invoice finance work?

Whilst different variations of invoice finance work in slightly different ways the main process remains the same:

  1. Your business raises an invoice
  2. Funder advances up to 90% of its value within 24 hours
  3. Payment is collected from the customer
  4. The remainder of the invoice value is made available, less fees

These diagrams look in more detail at how the process works for both invoice discounting and factoring. 

What is the difference between invoice discounting and factoring?

Invoice discounting and factoring both aim to boost your cash flow by releasing working capital from your invoices.

The main difference between them is that factoring also comes with a dedicated sales ledger management service.

The credit control expertise this brings can help to reduce in-house overheads and improve collection times.

This makes factoring particularly useful for smaller businesses, whose resource would be better spent on core activities.

In contrast, with invoice discounting you keep your credit control function in-house and continue to be responsible for collecting payments.

Both products can additionally incorporate bad debt protection to safeguard your cash flow against late payment and protracted default.

For a more detailed comparison of the two options take a look at this free download. 

Can my business use invoice finance?

Although invoice finance is better suited to certain industry sectors, if your business is B2B and trades on credit terms you should be suited to this method of funding.

What are the benefits of invoice finance?

There are so many reasons businesses are increasingly turning to invoice finance. Here are just a few:

Are there any negatives?

As with all funding products, invoice finance is not a one-size-fits-all solution:

Who offers invoice finance?

A whole host of banks, independent funders and factoring companies offer invoice finance products.

The choice available to businesses has grown substantially in recent years, with new players entering the market and lenders diversifying the different types of products available.

This post looks at the importance of the relationship between a business and its funding partner. 

How can I secure the right invoice finance solution for my business?

With so many lenders and variations of invoice finance to consider, it’s vital that you do your research to ensure that you are getting the most suitable solution for your needs.

However, with lenders often using different structures, fees and terminology, comparing your options can be time-consuming and challenging.

Fortunately, commercial finance brokers can talk you through all of the different options and their benefits to help you find the most suitable solution.

With the help of a broker you can:

For more reasons why working with a broker could help your business read this. 

Still have questions?

If you still have questions about invoice finance, how it works or if your business could benefit, we could help.

As an independent commercial finance broker that specialises in invoice finance, we have extensive knowledge of the product and providers and would be more than happy to discuss any questions you may have.

And, with wider knowledge of the finance market, if invoice finance isn’t the right fit for your business, we can help you identify and secure the funding product most suited to your requirements.

Contact us today on 0800 9774833 or to discuss your options with one of our experienced funding consultants.


Some of the funders we work with

  • 4Syte
  • Accelerated Payments
  • PNC Business Credit
  • Tradeplus24
  • ABN AMRO Commercial Finance
  • Davenham Asset Finance
  • Sonovate
  • Royal Bank of Scotland
  • Pulse Cashflow Finance
  • Aldermore Invoice Finance
  • InvoCap
  • Regency Factors
  • Roma Finance
  • Santander Corporate & Commercial
  • Woodsford Tradebridge
  • IGF Invoice Finance
  • Blazehill Capital
  • Haydock Finance Ltd
  • Metro Bank SME Finance
  • Peak Cashflow
  • Partnership Invoice Finance
  • Praetura Invoice Finance
  • Cynergy Business Finance
  • Lloyds Bank Commercial Finance
  • Kriya
  • Giant
  • Ultimate Finance Group
  • Davenham Trade Finance
  • Skipton Business Finance
  • Time Finance
  • Close Brothers Invoice Finance
  • Leumi ABL
  • Optimum Finance
  • Merchant Money
  • Berkeley Trade Finance Ltd
  • Investec
  • Nationwide Finance
  • MaxCap
  • Clear Factor
  • eCapital Commercial Finance
  • Castlebridge
  • Barclays
  • Team Factors

Authorised and regulated by the Financial Conduct Authority (FCA number 730445)
We are a credit broker and not a lender and offer credit facilities from a panel of lenders