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Invoice financing is a financial solution that enables businesses to access funds tied up in unpaid invoices. Instead of waiting for customers to pay, you can receive a percentage of the invoice value upfront from a lender, improving cash flow and ensuring steady operations. 

It’s especially beneficial for businesses facing delayed payments or aiming to capitalise on growth opportunities. By bridging cash flow gaps, invoice financing can help cover operating costs, manage expenses, and maintain financial stability.

When a business issues an invoice to a customer, it typically has to wait for 30, 60, or even up to 90 days to receive payment. This delay can quickly create cash flow gaps that hinder day-to-day operations and may impact the ability to grow the business too.

Invoice finance bridges this gap by providing immediate access to a significant portion of the invoice's value. Here's how it works:

  1. Invoice creation: Your business delivers goods or services to your customer and issues an invoice, as usual.

  2. Invoice submission: You submit that invoice to an invoice finance provider, also known as a factor.

  3. Advance payment: The factor typically advances you a substantial portion of the invoice's value - sometimes up to 90% - within 24 hours.

  4. Debt collection: The factor now takes responsibility for collecting the full payment from your customer when the invoice payment is due.

  5. Remaining payment: Once the customer settles the invoice, the factor deducts their fees and transfers the remaining balance to your business.

Invoice finance ensures your business has a more predictable and steady cash flow. This makes it easier to cover operating expenses, invest in growth, and take advantage of new opportunities without waiting (or chasing) customers for payment.

Is invoice financing right for my business?

Determining whether invoice finance is suitable for your business depends on various factors:

Cash flow needs

If your business regularly experiences cash flow gaps due to delayed payments from customers, invoice finance can be a useful solution to bridge those shortfalls.

Customer payment terms

If your customers have long payment terms - e.g., 30, 60, or 90 days - invoice finance can provide much-needed liquidity while you wait for payment.

Growth ambitions

If you aim to expand your business, take on larger projects, or invest in new opportunities, invoice finance can provide the necessary capital.

Creditworthiness

Invoice finance is often more accessible than traditional loans, making it suitable for businesses with limited credit history or lower credit scores.

The cost of invoice finance varies by provider, but there are a few things to consider that could increase or reduce the cost include:

  • The size of your business

  • The number of invoices and their value

  • The creditworthiness of your customers

You can usually expect to pay a percentage fee based on the invoice value and the time it takes for your customer to settle the invoice.

It's a good idea to get quotes from multiple providers and compare their fees to find the most cost-effective option for your business.

Types of invoice finance

Alternatives to invoice finance

FAQ

About the author

Joe Phelan profileJoe Phelan
Joe joined the money.co.uk team in 2024, where he helps small business owners navigate the often confusing world of business finance. His role is to cut through the jargon and create clear, actionable content that empowers entrepreneurs to make confident financial decisions.

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