The basic idea
Invoice finance advances cash against your unpaid business-to-business invoices. You typically receive 80% to 90% of the invoice value straight away, with the balance, less fees, when your customer pays.
Three main types
- Factoring: the funder runs your sales ledger and collects payment
- Invoice discounting: you keep control and it can be confidential
- Selective: fund individual invoices when you need to
How it is priced
Most facilities charge a service fee as a percentage of turnover and a discount fee, similar to interest, on the cash you draw. There may be minimum fees and notice periods, so read the terms closely.
Who it suits
Businesses with creditworthy trade customers on payment terms of 30 days or more, especially those growing quickly or taking on large contracts.
Common questions
Can I use invoice finance if I sell to consumers?
No. It works for invoices to other businesses.
What happens if my customer does not pay?
With recourse facilities, you must repay the advance. Non-recourse facilities include credit protection for a higher fee.
This guide is general information, not personal financial advice. If you are worried about debt, free help is available from MoneyHelper, StepChange and Citizens Advice.