UK Finance members had more than £21bn advanced to around 34,000 businesses at the end of 2024, against client sales of over £315bn. Very little of that was described by its users as "invoice finance". It was factoring, discounting, CID, selective or asset-based lending. Invoice finance is the category, not the product.
What is invoice finance?
Invoice finance is the umbrella term for any facility that releases funding against a business's unpaid business-to-business invoices. A provider advances a percentage of each eligible invoice, typically 70% to 90%, and pays the balance less charges when the customer settles. The main products within it are invoice factoring and invoice discounting.
The distinction matters because the products behave differently. Invoice factoring bundles funding with an outsourced credit control service and is disclosed to customers. Invoice discounting provides funding only; you keep collecting payment and customers usually do not know. Quotations, eligibility and costs differ accordingly, so when a provider says it "offers invoice finance", the first question is: which kind?
The family of invoice finance products
| Product | Who collects payment | Customers told? | Ledger coverage | Typically suits |
|---|---|---|---|---|
| Invoice factoring | The provider | Yes | Whole ledger | Smaller and growing firms without credit control staff |
| Invoice discounting | Your business | Sometimes (disclosed) or no | Whole ledger | Established firms with good systems, usually higher turnover |
| Confidential invoice discounting | Your business | No | Whole ledger | Larger firms that want privacy and have audited accounts |
| Selective invoice finance | Either, by product | Depends | Chosen customers or invoices | Businesses with occasional or seasonal needs |
| Spot factoring | The provider | Usually | One invoice at a time | One-off large invoices, no ongoing commitment |
| Asset-based lending (ABL) | Your business | Usually no | Ledger plus stock, plant or property | Larger businesses, acquisitions and refinancing |
Two overlays can be added to most of these. Bad debt protection converts a recourse facility into a non-recourse one for approved customers. And CHOCS (Client Handles Own Collections) is a disclosed factoring variant where you do the chasing. Asset-based lending is wider than invoice finance: a receivables facility sits at its core, with additional lending against other assets layered on top.
How an invoice finance facility works
Assessment
The provider reviews your ledger, customers, systems and accounts, then proposes an advance rate, facility limit, fees and the product type it considers appropriate.
Documentation
You sign a facility agreement. The provider usually takes a debenture over the business and, for factoring, sends a notice of assignment to customers.
Drawdown
You upload invoices (factoring) or your full sales ledger (discounting). Funds up to the available amount can be drawn to your bank account.
Settlement
Customers pay the provider or a trust account. The provider reconciles receipts, deducts its charges and releases the remaining balance.
Facility limits and availability
Two numbers govern how much you can draw. The facility limit is the ceiling set in the agreement, for example £250,000. Availability is what you can actually draw today, and it is recalculated constantly:
Illustrative example Availability on a £250,000 facility
- Gross sales ledger
- £320,000.00
- Less invoices over 90 days, disputed or excluded
- £40,000.00
- Less amount over 30% concentration limit on one customer
- £20,000.00
- Approved ledger
- £260,000.00
- Advance rate 85% gives gross availability
- £221,000.00
- Less funds already drawn
- £150,000.00
- Available to draw now
- £71,000.00
Figures are illustrative estimates only and do not represent a finance offer. If the approved ledger grew to £350,000, gross availability would be £297,500 but capped at the £250,000 facility limit.
This is why invoice finance is described as flexible: availability moves with sales. It is also why it can fall unexpectedly, for instance when a large customer pays late and its invoices pass the 90-day cut-off.
What invoice finance costs
Almost every facility charges a service fee, a percentage of invoice value or turnover, and a discount charge, an interest-like cost on funds drawn quoted as a margin over Bank of England base rate or SONIA. Published ranges are roughly 0.2% to 1% service fee for discounting and 0.75% to 3% for factoring, with discount margins of about 1.5% to 5% a year. Arrangement fees, minimum fees, audit fees, bad debt protection premiums and termination fees may be added. Because the product mix differs, quotations should be compared product against product; our costs guide and calculator help with that.
Who invoice finance suits
Any business that sells on credit terms and waits 30 to 120 days for payment is a candidate. The product within the family that suits you depends on size and structure: factoring for smaller firms wanting collections handled, discounting and CID for established firms with their own credit control, selective and spot products for occasional needs. Sector matters too. Recruitment, haulage, manufacturing and wholesale are well served; construction and businesses invoicing in stages or in advance are harder to fund.
Is invoice finance a loan?
Strictly, no. Factoring is the purchase and assignment of receivables: the provider buys your invoices and owns the right to collect them. There is no fixed sum to repay and no repayment schedule; the "repayment" happens when your customer pays.
Invoice discounting is closer to borrowing. It is often structured as a revolving facility secured on the sales ledger, with a debenture over the business and interest charged daily on the amount drawn. Even so, the amount available tracks your invoices rather than being fixed, and funds are not advanced against anything other than genuine receivables. The practical differences from a term loan or overdraft are covered in invoice finance vs business loans.
Advantages and disadvantages
Advantages
- Funding scales with turnover rather than being fixed
- Secured on customers' invoices, so useful where other security is lacking
- A range of products allows close matching to your needs
- Optional credit control and bad debt protection
- Can replace or sit alongside an overdraft
Disadvantages
- Total cost is often higher than bank lending for low-risk borrowers
- Availability can drop when customers pay late
- Contract terms, notice periods and minimum fees apply
- Not suitable for consumer sales, deposits or stage billing
- Debentures and personal guarantees are commonly requested
Our guide to advantages and disadvantages goes through each point with examples.
Not sure which product to enquire about?
Tell us about your business and we will explain which part of the invoice finance family tends to fit a ledger like yours.
How to choose the right type of invoice finance
- Keep or outsource credit control? If you have no credit controller, factoring. If you have a capable team, discounting.
- Must it be confidential? Confidential invoice discounting, if you meet the stricter criteria; otherwise disclosed products.
- Whole ledger or occasional? Whole-ledger facilities cost less per invoice but commit you; selective and spot products suit seasonal or one-off needs.
- Who carries bad debt risk? Recourse is cheaper; non-recourse or bad debt protection costs more but protects against approved-customer insolvency.
- Any sector quirks? Construction, stage billing and heavy customer concentration narrow the field and may need a specialist.
Check what providers look for in our eligibility checker, then compare factoring vs invoice discounting in detail.
Regulation: invoice finance provided to limited companies and LLPs is not regulated by the Financial Conduct Authority. Most UK providers follow the UK Finance Standards Framework, with an independent complaints process adjudicated by CEDR. Different rules can apply to sole traders and small partnerships; see is invoice finance regulated?
Frequently asked questions
What is invoice finance?
Invoice finance is the umbrella term for funding released against a business's unpaid customer invoices. A provider advances a percentage of each invoice, typically 70% to 90%, and the balance less charges follows when the customer pays. The family includes invoice factoring, invoice discounting, confidential invoice discounting, selective invoice finance and spot factoring.
Is invoice finance the same as invoice factoring?
No. Invoice factoring is one product within invoice finance. It combines funding with a credit control service and is usually disclosed to customers. Invoice discounting, the other main product, provides funding only and is usually confidential. Treating the two terms as interchangeable is a common source of confusion when comparing quotations.
Is invoice finance a loan?
Not in the conventional sense. Factoring is the purchase of your receivables by the provider, with the invoices assigned to it. Invoice discounting is often structured as a revolving facility secured on your sales ledger, which behaves more like borrowing, but the amount available is driven by your invoices rather than a fixed lump sum and there is no repayment schedule beyond customers paying.
How much can I borrow with invoice finance?
Availability is calculated from your eligible invoices multiplied by the advance rate, capped by a facility limit and adjusted for concentration limits, disputed or overdue invoices and any reserves the provider holds. A business with £200,000 of eligible invoices and an 85% advance rate might have up to £170,000 available, subject to those adjustments.
Who is eligible for invoice finance?
Businesses that sell goods or services to other businesses on credit terms and invoice for completed work. Many providers set a minimum turnover of around £100,000 to £250,000 for factoring and higher for discounting, although selective and spot products exist for smaller businesses. Customer creditworthiness matters more than your own balance sheet.
How do I choose between the types of invoice finance?
Ask three questions. Do you want to keep credit control or outsource it? Factoring outsources it; discounting keeps it in-house. Should customers know? Factoring is disclosed; confidential discounting is not. Do you need funding across the whole ledger or only occasionally? Whole-ledger facilities cost less per invoice; selective and spot products suit occasional use.