A business turning over £400,000 a year rarely needs funding against every invoice it raises. More often the pressure comes from one large order, a seasonal peak or a single customer that always pays late. Selective invoice finance is built for that pattern: you choose which invoices to fund and when, and you pay only for the ones you use.
What selective invoice finance is
Selective invoice finance is an ongoing facility that lets a business fund individual invoices, or all the invoices from a chosen customer, rather than assigning its whole sales ledger to a provider. The account stays open for as long as you want it, but there is no obligation to put anything through it in a given month.
Selective invoice finance: an invoice finance facility under which the business, not the provider, decides which invoices are submitted for funding. Also marketed as single invoice finance, selective invoice discounting and flexible invoice finance.
Some providers run it as selective factoring, verifying each invoice with your customer and collecting payment themselves. Others run it as selective invoice discounting, where you keep collecting and the customer may not be told. The difference mirrors that between invoice factoring and invoice discounting generally.
How it differs from a whole-ledger facility
A traditional factoring or discounting facility is a whole-ledger arrangement. Every invoice you raise to approved customers is assigned, the contract commonly runs for 12 months with three to six months' notice, and the provider usually imposes a minimum monthly fee, a facility limit and concentration limits. In return it charges a lower rate per pound funded.
Selective finance removes the commitment. You keep control of the invoices you do not submit, there is normally no minimum fee, and many providers offer rolling or short-notice terms. The price of that freedom is a higher charge on each invoice funded, because the provider cannot spread its costs across your whole turnover.
It also differs from spot factoring, a one-off transaction rather than a standing facility. If you expect to fund an invoice once and walk away, spot factoring may be simpler; if you expect to come back several times a year, a selective facility avoids repeating the set-up each time.
How a selective facility works
Set up the facility
The provider reviews your business and typical customers, opens an account and usually approves a list of customers whose invoices can be funded, each with a credit limit.
Choose an invoice to fund
When you need cash, you upload a specific invoice or a batch from one customer. The provider verifies that the work has been delivered and accepted.
Receive the advance
The provider pays an agreed percentage, commonly 70% to 90% of the invoice value. On an established facility this often happens within a day or two of verification, depending on the provider.
Customer pays, balance released
When the customer settles, the provider deducts its fee and releases the remainder. Nothing else on your ledger is affected.
Who selective invoice finance suits
Because the facility sits unused at no cost, it works best where the funding need is uneven rather than constant.
- Seasonal businesses
An events contractor or garden products wholesaler may need working capital for three months a year. A whole-ledger facility would charge minimum fees through the other nine.
- Occasional large orders
A contract two or three times your usual size can leave you paying for materials or wages for 60 to 90 days. Funding that one invoice bridges the gap.
- Businesses below traditional turnover minimums
Whole-ledger discounting is often aimed at turnover of £500,000 or more, and the British Business Bank has noted that a traditional facility is generally unsuitable below roughly £300,000. Selective products fill that gap.
Advantages and disadvantages
Advantages
- No obligation to fund invoices you do not need to fund
- Usually no minimum monthly fee, arrangement fee or long notice period
- Per-invoice pricing is easy to weigh against the margin on the job
- Open to businesses below whole-ledger turnover minimums
Disadvantages
- Dearer per pound funded than a whole-ledger facility used regularly
- Each invoice is verified individually, so more administration per funding event
- The provider may decline specific customers or invoices
- Disclosed versions mean the chosen customer is told
Eligibility
Providers look harder at the customer who owes the money than at the business raising the invoice, because each transaction stands on its own. Typical requirements include:
- Business-to-business invoices for goods delivered or services completed, not deposits, stage payments or work in progress.
- Customers that are limited companies or public bodies with a traceable credit record, each given a credit limit.
- Invoices that are undisputed and free of contras, retentions or sale-or-return terms.
- Your business is usually a limited company or LLP. Sole traders and small partnerships can be treated differently under the Consumer Credit Act 1974, and many providers restrict facilities accordingly.
Our eligibility guide lists the factors that make providers cautious across all types of invoice finance.
Costs and a worked example
Selective finance is usually priced per invoice: a single percentage of the invoice value for an initial period, often 30 days, with a further charge for each additional period the invoice remains unpaid. Published pricing varies widely, but around 1% to 3% of invoice value for the first 30 days is typical of what providers advertise, with higher rates for smaller invoices and weaker customers. Per pound funded that is dearer than a whole-ledger facility, but there are usually no minimum, arrangement or termination fees to add.
Illustrative example Funding one large invoice
An engineering subcontractor raises a £30,000 invoice to a main contractor on 60-day terms and needs around £20,000 within the week to pay suppliers.
- Invoice value
- £30,000.00
- Initial advance (85%)
- £25,500.00
- Fee for first 30 days (2%)
- £600.00
- Fee for days 31 to 55 (further 1%)
- £300.00
- Balance released when the customer pays on day 55
- £3,600.00
- Total received
- £29,100.00
Figures are illustrative estimates only and do not represent a finance offer. Fees and eligibility vary by provider and circumstances.
Here the £900 cost is 3% of the invoice over 55 days. On a whole-ledger facility the same business might pay 1.5% to 2%, but would carry a minimum fee every month. Funding four such invoices a year, the selective route is likely to cost less; funding four a month, the whole-ledger facility usually wins. Our guide to invoice factoring costs explains each charge, and the factoring calculator lets you test your own figures.
Limitations to be aware of
Selective finance is not a substitute for a permanent working capital line: a business short of cash every month will find per-invoice pricing expensive. Funding rests on your customer's standing, so an invoice to a small or newly formed customer may be declined even when your own business is sound, and credit limits cap how much you can fund with any one debtor. Because most selective facilities are on recourse terms, an invoice unpaid beyond the agreed period comes back to you unless you add bad debt protection.
Selective finance, spot factoring and whole-ledger facilities compared
| Feature | Selective invoice finance | Spot factoring | Whole-ledger facility |
|---|---|---|---|
| Structure | Standing facility, used when needed | One-off transaction | Standing facility covering all approved invoices |
| Which invoices | You choose each invoice or customer | A single invoice, agreed case by case | All invoices to approved customers |
| Contract and minimum fees | Often rolling; usually no minimum | None | Commonly 12 months; minimum fee common |
| Pricing basis | Percentage per invoice per period | Flat fee per period | Service fee on turnover plus discount charge |
| Cost per pound funded | Higher | Highest | Lowest |
| Best for | Irregular or seasonal needs | A genuine one-off cash gap | Continuous working capital need |
Not sure whether selective or whole-ledger funding fits?
Tell us how often you expect to need funding and we will explain which structures providers are likely to suggest.
Frequently asked questions
Is selective invoice finance the same as single invoice finance?
Largely, yes. Single invoice finance is a marketing name for funding one invoice at a time; selective invoice finance is the standing facility that lets you do so repeatedly. Some providers use single invoice finance to mean a one-off transaction, which this site calls spot factoring.
Do I have to fund a minimum number of invoices?
Usually no. Most selective facilities have no minimum usage and no minimum monthly fee. Check the agreement, because a few providers expect a minimum level of activity or charge a dormancy fee if the account is unused for a long period.
Will my customer know I am funding their invoice?
It depends on the provider. Selective factoring is normally disclosed: the provider verifies the invoice with the customer and the customer pays the provider. Some providers offer confidential selective discounting, generally reserved for larger businesses with strong credit control.
How quickly can funds be released?
After set-up, which often takes one to two weeks, funds against a verified invoice are often released within a day or two. The first invoice to a new customer takes longer because that customer has to be approved. Timing varies by provider and is never guaranteed.
What happens if the customer does not pay?
Most selective facilities are recourse arrangements. If the invoice remains unpaid beyond the agreed period, typically 90 to 120 days, the provider asks you to repay the advance or replace the invoice. Some providers let you add bad debt protection to cover the insolvency of an approved customer.
Can I use selective finance alongside an overdraft or loan?
Often, yes, provided the other lender does not hold a charge over your book debts or agrees to a waiver. Providers check Companies House for existing charges before setting up a facility.