Invoice finance
Turn an unpaid customer invoice into cash within 24 hours. The dominant UK working-capital product for B2B SMEs.
Definition
Invoice finance is a category of business lending where a lender advances cash against unpaid customer invoices. Typical advance: 70–90% of invoice face value, paid within 24 hours of the invoice being raised. The remainder (less fees) is paid when the customer settles the invoice.
Two flavours
Invoice factoring (disclosed)
The lender takes over credit control. They notify the borrower's customer that the invoice has been assigned, chase payment, and collect directly. The borrower gets cash now, the lender chases. Used by smaller UK SMEs who don't have a finance team to chase payments.
Invoice discounting (confidential)
The lender stays invisible. The borrower's customer never knows the invoice has been financed; the borrower continues to collect payment and remits to the lender. Preferred by larger UK SMEs who don't want to disrupt customer relationships. Usually requires £250k+ turnover.
Selective / spot invoice finance
One-off invoices, no minimum, no contract. More expensive per invoice but useful for ad-hoc cashflow gaps. Specialist lenders like MarketFinance, Tide and a handful of fintechs serve this market.
Why UK SMEs use it
The UK has long late-payment culture — the average B2B invoice is settled around 45 days after issue (Federation of Small Businesses data, 2024–2025). For an SME running 30-day payroll, that gap is the most common cause of cashflow stress.
Invoice finance bridges the gap. A construction sub-contractor invoicing a major builder on 60-day terms can advance ~85% of the £80k invoice within 24 hours instead of waiting two months.
Cost structure
Two charges:
- Service fee — covers credit control, account management. Typically 0.2%–2% of turnover, charged monthly.
- Discount fee — interest on the advance, charged daily until the invoice is paid. Typically 1.5%–4% above base rate.
For a £100k/month invoicing SME on 60-day terms with 85% advance, expect total cost around £800–£2,000/month. As a percentage of invoice value, around 0.8%–2.0% per invoice.
Underwriting nuance
Unlike a standard working-capital loan, invoice finance lenders underwrite two parties:
- The borrower — financial health, sector, trading history, fraud history.
- The debtors — the borrower's customers whose invoices are being financed. A borrower with two large blue-chip customers is more financeable than one with 50 small unknown customers.
Concentration risk — usually a credit risk — works in the borrower's favour here, as long as the concentrated customer is creditworthy.
Common UK invoice finance providers
- Bibby Financial Services — established, full-service factoring
- MarketFinance — modern API-first invoice finance
- iwoca — short-term invoice finance via iwocaPay
- Sonovate — specialist in recruitment-agency factoring
- Apex Insurance, Closebrothers Invoice Finance — mid-market focus
Most of these are FCA-regulated for AML and consumer-credit purposes even though invoice finance to businesses is largely outside the FCA perimeter for product regulation.
Related
- Working capital — what invoice finance funds
- Factor rate — how some revenue-based variants price
- FCA-regulated lender
- UK working-capital pricing benchmarks
Frequently asked
What is the difference between factoring and invoice discounting?
Both advance cash against unpaid invoices. The difference is disclosure and credit control. With factoring, the lender notifies the end customer and collects payment directly. With invoice discounting (confidential), the lender stays invisible: the borrower continues to collect from customers and remits to the lender. Discounting is preferred by larger SMEs who want to preserve customer relationships; factoring is the simpler option for smaller businesses.
How much does invoice finance cost?
Two cost components: service fee (0.2%–2% of turnover, monthly) and discount fee (1%–4% above base rate, on advances). For an SME with £100k/month invoicing, total cost runs around £800–£2,000/month.
Which UK SMEs benefit most from invoice finance?
B2B businesses with customers on 30–90 day payment terms. Recruitment agencies, construction sub-contractors, manufacturers selling to large retailers, and B2B service providers are the highest-volume users.
How is invoice finance underwritten?
The lender underwrites the borrower AND the borrower's customers (debtors). A borrower with two large, creditworthy customers is much more financeable than one with 50 small unknown customers.