What Is Invoice Finance? A Smart Way for UK SMEs to Improve Cash Flow
Late payments cost UK small businesses over £23 billion a year in lost revenue and productivity. For many SMEs, unpaid invoices tie up vital working capital that could otherwise be used to pay staff, invest in stock, or grow operations. That’s where invoice finance comes in, a flexible, fast funding solution that helps businesses unlock cash from their unpaid invoices.
In this guide, we’ll break down exactly what invoice finance is, how it works, the pros and cons, and how UK businesses can qualify and choose the right provider.
What Is Invoice Finance?
Invoice finance is a type of business funding that allows you to release cash tied up in unpaid customer invoices. Instead of waiting 30, 60, or even 90 days for customers to pay, you can access most of the value of those invoices immediately through a lender.
Think of it as borrowing against money you're already owed.
How Does Invoice Finance Work?
Here’s a simplified version of how invoice financing works:
- You raise an invoice to your customer.
- You send that invoice to your finance provider.
- The provider advances you up to 90% of the invoice value — often within 24 to 48 hours.
- Once your customer pays the invoice, the lender releases the remaining amount, minus their fees.
It’s a way to turn future income into immediate working capital.
Types of Invoice Finance
There are two main types of invoice finance:
1. Invoice Factoring
- The provider takes over credit control and chases payment from your customers.
- Customers know a third party is involved.
- Suitable for companies that prefer not to handle collections.
2. Invoice Discounting
- You retain responsibility for collections.
- Your customers usually don’t know you’re using a finance provider.
- Offers more discretion but requires solid credit control processes.
Some lenders also offer Selective Invoice Finance, where you choose which invoices to fund instead of financing the whole ledger.
Who Is It For?
Invoice finance is ideal for UK businesses that:
- Trade with other businesses (B2B)
- Have outstanding invoices of £5,000+
- Wait 30+ days for payment.
- Experience cash flow gaps due to late payments
- Need to fund growth, payroll, or stock.
It’s common in industries like recruitment, construction, manufacturing, logistics, wholesale, and business services.
Benefits of Invoice Finance
Faster Cash Flow
No more waiting for customers to pay. Get cash in 24–48 hours.
Flexible Funding
Grows with your sales. The more you invoice, the more you can borrow.
No Asset Security Needed
Funding is based on your receivables, not business assets.
Reduces Late Payment Pressure
Outsourcing collections can speed up payment times.
Supports Growth
Smooths cash flow during periods of rapid expansion.
Protects Supplier Relationships
Keeps your supply chain running by avoiding payment delays.
Drawbacks to Consider
Fees and Charges
Expect to pay a service fee (1–3%) and a discount rate (similar to interest, typically 2–5%).
Customer Perception (with factoring)
Involving a third party in collections can feel impersonal to some clients.
Contractual Ties
Some providers require a 6–12 month commitment.
Eligibility Hurdles
You need a reliable client base and a consistent invoicing process.
How to Qualify for Invoice Finance
Each lender has slightly different criteria, but in general, you’ll need:
- Limited company or LLP registered in the UK
- Trading history (usually 6+ months)
- Invoices to other businesses, not consumers
- Customers who pay on time or have good credit
- Turnover of at least £50,000 annually
Some lenders will work with startups or pre-revenue companies if you have invoices raised.
How Much Can You Borrow?
Lenders typically advance 80–90% of the invoice value.
If you invoice £50,000 per month, you may be eligible for up to £45,000 in financing.
Use our Invoice Finance Calculator to estimate your potential borrowing.
Invoice Finance vs Other Options
Invoice finance shines when your biggest asset is what you’re already owed.
Top Invoice Finance Lenders in the UK
There are dozens of reputable providers in the UK. Some of the best include:
- Bibby Financial Services
- MarketFinance
- Close Brothers Invoice Finance
- Aldermore Invoice Finance
- Boost Capital
- Ultimate Finance
You can compare invoice finance lenders on our blog or run a match via our platform.
Is Invoice Finance Right for Your Business?
Ask yourself:
- Are you waiting on large customer payments?
- Do you sell to other businesses?
- Would faster cash flow help with payroll, purchasing, or growth?
- Do you want to avoid taking on traditional debt?
If you answered yes to two or more of the above, invoice finance could be worth exploring.
Use Funding Agent to Compare Invoice Finance Options
Funding Agent makes it easy to compare invoice finance providers based on your business profile.
- No credit impact
- Access to dozens of FCA-authorised lenders
- Match within minutes
Use our Invoice Finance Calculator or check eligibility instantly on our Invoice Financing hub.
Frequently Asked Questions
Is invoice finance a loan?
No, it’s technically not a loan. You’re getting an advance on money you’re already owed.
Does it affect my credit score?
Not usually. Most invoice finance products use soft checks.
How quickly can I get funds?
Most providers offer same-day or 24-hour funding after setup.
Can I choose which invoices to finance?
Yes, if using Selective Invoice Finance. Full ledger solutions also exist.
Can startups use invoice finance?
Yes, if they have raised invoices to established clients.
Final Thoughts
Invoice finance is one of the most practical ways for UK SMEs to turn unpaid invoices into immediate growth capital. Whether you’re struggling with cash flow gaps or simply want to smooth working capital, this flexible funding model is well worth exploring.
Don’t let unpaid invoices stall your growth. With Funding Agent, you can unlock the cash tied up in your receivables and keep your business moving forward. Our platform connects you with trusted UK invoice finance providers in minutes, no hard credit checks, no paperwork headaches. You can check your eligibility instantly or use our Invoice Finance Calculator to see how much working capital you could access today.
