A technology business with £2m of turnover might earn it from a dozen contractors on client sites, three fixed-price development projects, a managed service contract and a software licence it resells. To an invoice finance provider those are four different kinds of debt. Two are easy to fund, one is fundable with care, and one usually is not.
How IT and technology businesses invoice
| Billing model | Typical invoice | Usually fundable? |
|---|---|---|
| Contractor and consultancy time | Weekly or monthly on approved timesheets. | Yes. Clear evidence of work done and accepted. |
| Fixed-price project milestones | Invoice on reaching a deliverable: design sign-off, UAT, go-live. | Yes, once the milestone is accepted. Not before. |
| Hardware resale | Invoice on delivery of servers, networking kit, devices. | Yes, on delivery and sign-off. Watch supplier terms and margin. |
| Managed services and support | Monthly fixed fee, in arrears or in advance. | In arrears, usually yes. In advance, generally no. |
| SaaS subscriptions | Monthly or annual fee billed at the start of the period. | Generally no. Billed in advance; service not yet delivered. |
| Software licences | Annual or perpetual fee, often billed up front. | Generally no. Resold third-party licences are sometimes considered on delivery. |
Fundable invoice: an invoice for goods delivered or services completed and accepted, owed by a business customer, free of disputes and not subject to the customer's right to cancel. Anything billed before delivery falls outside invoice finance.
Where the cash-flow pressure comes from
- Contractor payroll. Contractors expect payment weekly or monthly on their timesheet; the client pays 30 to 60 days after month end. Growth in headcount means growth in the gap.
- Milestone timing. If UAT slips three weeks, a six-figure receipt slips with it while the developers are still paid.
- The supplier-terms gap in resale. Distributors give 30 days; corporate customers take 45 to 60. On a £200,000 order at 8% margin, the reseller funds £184,000 for a month to earn £16,000.
- Concentration. Consultancies and MSPs often have a handful of large clients, and a ledger with 50% in one name limits what any provider can advance.
How invoice factoring fits each part of the business
IT contractors and consultancies
This is where factoring works most naturally. The agency or consultancy raises invoices on approved timesheets, the provider advances a percentage within a day or two, and the balance follows when the client pays. The mechanics match general recruitment factoring, and several providers treat IT contracting as a sub-sector of it. Whether contractors are engaged through umbrella companies or their own limited companies, the funding need is the same.
Project-based software houses
Milestone invoices are fundable on acceptance, evidenced by a signed-off acceptance certificate, an email confirming UAT completion or a purchase-order receipt. Project businesses often benefit most from selective invoice finance, funding large milestone invoices as they arise without committing a lumpy ledger.
Hardware and software resellers
Delivery invoices are fundable, and factoring can bridge the gap between distributor terms and customer terms. The margin is thin, so the arithmetic matters: a facility costing 1.5% to 2.5% of invoice value takes a meaningful slice of an 8% to 12% margin, and only makes sense where it allows the reseller to accept orders it would otherwise turn down or to secure early-settlement discounts. Resold licences are treated case by case; subscriptions are not funded.
SaaS and recurring revenue businesses
Subscription invoices are raised before the service is delivered, so a standard facility excludes them. A business whose income is mostly subscriptions is better served by recurring revenue financing, a separate product in which a lender advances against contracted monthly or annual recurring revenue rather than individual invoices. It is not invoice finance, but it is worth knowing it exists before approaching a provider with a SaaS ledger.
Mixed ledgers are normal. A provider will usually agree a facility against the fundable part only, so the useful figure is your monthly in-arrears billing for delivered work, not your total turnover.
Which structures suit technology businesses
Invoice factoring
Funding with the provider's credit control. Suits contractor agencies and smaller consultancies without a finance team.
Confidential invoice discounting
Funding against the ledger with collections in-house and clients not told. Suits established consultancies and MSPs.
Selective invoice finance
Fund chosen invoices only. Suits project businesses with occasional large milestones and resellers with one-off large orders.
Bad debt protection
Insolvency cover on approved customers, worth considering where one or two clients dominate the ledger.
Not sure how much of your billing is fundable?
Tell us how you invoice, contractors, milestones, hardware or subscriptions, and we will explain which facility types providers are likely to consider.
Costs and limitations
The two main charges are a service fee, roughly 0.5% to 3% of invoice value or turnover depending on product, and a discount charge of roughly 1.5% to 5% a year above Bank of England base rate or SONIA on funds advanced. Set-up, minimum monthly and audit fees may apply; our guide to invoice factoring costs covers each. Technology-specific limitations:
- Subscription, licence and in-advance billing is excluded, which can leave a surprisingly small fundable ledger.
- Milestone invoices are funded only on acceptance, so a facility does not help with pre-acceptance development cost.
- Concentration limits of roughly 25% to 30% per customer bite hard on consultancies with a few large clients.
- Scope arguments and "it doesn't work yet" claims are common in software, and a disputed invoice is not fundable until resolved.
- Whole-ledger facilities commonly run 12 months with three to six months' notice and minimum fees.
Illustrative example An IT consultancy funding a month's contractor invoices
A consultancy places 15 contractors with four corporate clients. Monthly timesheet invoicing is £180,000, paid on average 45 days after month end, and contractors are paid on the 7th of the following month. It uses confidential invoice discounting at an 85% advance.
- Month's timesheet invoices
- £180,000.00
- Initial advance (85%)
- £153,000.00
- Service fee (0.5% of invoice value)
- £900.00
- Discount charge (approx. 7% a year on advance for 45 days)
- £1,320.41
- Balance released when clients pay
- £24,779.59
- Total received from facility
- £177,779.59
The consultancy has £153,000 in the first days of the month, covering its contractor payroll of around £140,000 on the 7th, for a total cost of £2,220.41, about 1.2% of the invoices. Its £20,000 a month of SaaS resale, billed in advance, sits outside the facility.
Figures are illustrative estimates only and do not represent a finance offer. The discount rate assumes a 4% reference rate plus a 3% margin; actual advance rates, fees and terms vary by provider and circumstances.
Eligibility notes for technology businesses
The general requirements are on our eligibility page. For IT and technology, providers typically want a breakdown of turnover by billing model so the fundable ledger can be identified, signed client contracts for the main accounts, evidence of acceptance for milestone work, and clarity on contractor engagement, since IR35 status and umbrella arrangements affect the cost base. Most providers fund limited companies only.
Frequently asked questions
Can a SaaS company use invoice factoring?
Usually not for its subscription income. A subscription invoice is raised before the service period, so the customer has not yet received what it is paying for and could cancel or dispute it. Software businesses with recurring income are more likely to be served by recurring revenue finance, a separate product based on contracted monthly or annual revenue.
Are IT contractor timesheet invoices fundable?
Yes, and they are among the most straightforward invoices to fund. A weekly or monthly invoice backed by a client-approved timesheet is clear evidence that the work has been done and accepted.
What about project milestones?
A milestone invoice is fundable once the client has accepted the deliverable, evidenced by a signed-off acceptance test, written confirmation or a purchase-order receipt. Milestones invoiced before acceptance are generally held back.
Can a hardware reseller fund its invoices?
Generally yes. An invoice for equipment that has been delivered and signed for is a clean trade debt. The practical issue is that distributors want payment in 30 days or less while corporate customers take 45 to 60, and the reseller's margin is thin, so the cost needs checking against the margin on each deal.
My business has only two or three large clients. Is that a problem?
It can be. Many providers apply a concentration limit of roughly 25% to 30% of the ledger per customer and advance less against anything above it. A consultancy with three clients will usually need a provider willing to agree higher limits on well-rated customers, possibly with bad debt protection attached.
Next steps
Split last year's turnover into the categories in the table above and note each major client's payment terms. The in-arrears, delivered-and-accepted part is what a provider can fund. Before enquiring, read what happens if a customer does not pay and try the factoring calculator with your own invoice values.