Invoice Finance in the UK: What It Costs and Who It Suits

Invoice finance lets a UK business borrow against its unpaid invoices to other businesses. The provider advances 80% to 90% of each invoice, often within 24 hours of approval, and pays you the balance, less fees, when your customer settles. You pay a service fee and a discount charge, and sometimes extras on top. On short invoices the all-in cost is well above the headline interest rate, which is the part most guides skip. It suits SMEs that invoice other businesses on 30 to 90 day terms with a steady flow of work. It suits poorly a business that invoices consumers, has a handful of debtors, or has a profit problem rather than a timing problem.

Key Takeaways

How does invoice finance work?

The British Business Bank describes it as a way to access up to 80 or 90 per cent of the value of your invoices almost immediately. The remaining 10 or 20 per cent, less the provider's fees, is paid to you when your customer pays.

Take a £20,000 invoice at an 85% advance rate. You receive £17,000 shortly after the invoice is approved. When the customer pays the full £20,000, the remaining £3,000 is released, less the agreed charges. The £3,000 is called the retention or reserve.

The facility moves with your sales ledger. Raise more eligible invoices and more funding becomes available. If your turnover falls, the funding available falls with it, so it is not a fixed limit you can lean on in a quiet quarter.

Customers normally pay into an account controlled by the provider. Under a confidential arrangement that account is set up to look like yours, so the customer believes they are paying you.

The invoice has to be real and for work already done. You can only finance unpaid invoices for goods or services that have been delivered. A provider checks that, along with the quality of your customers and the latest accounts and aged debtor list.

Which type of invoice financing fits: factoring and invoice discounting

Both advance cash against invoices. The difference is who runs credit control and whether your customers know. In a factoring facility the provider acts as the factor: it takes over the sales ledger and collects from your customers.

	Invoice factoring	Invoice discounting
Who chases customers	The provider (the factor)	You
Do customers know?	Yes, they are told invoices are assigned to the provider	Usually not, though many facilities can also be run disclosed
Ledger management	Included	Not included; finance only
Service fee	Generally higher, because the provider does more work	Generally lower
Who it usually suits	Smaller businesses with no credit control function	Established businesses with reliable accounting and collections

The British Business Bank says factoring is generally easier for smaller businesses to secure and is usually available for businesses with annual sales up to £2 million. Discounting is more often used by more established businesses with larger turnovers, although more providers now offer it to smaller ones. No single invoice finance solution suits everyone, so the choice comes down to two questions:

• Do you have someone who chases invoices properly? Under an invoice discounting facility you are still responsible for collecting. NatWest is blunt that robust ledger control is a must on its discounting product. If late payment is a persistent drain on your time, a factoring facility pays for part of itself in saved effort. The British Business Bank suggests weighing that saving against the higher fee.
• Can you live with customers knowing? Under factoring, a third party's name appears on the correspondence. Some customers do not care. Others read it as a sign of cash strain. A facility cannot be un-disclosed once a customer has received a letter from your funder, so decide this before you start, not after.

Confidential does not mean unsupervised. The lender still monitors your ledger and may require payment to go through a controlled account. Some providers offer both versions, so eligibility does not dictate disclosure. Close Brothers and Bibby both offer factoring (disclosed) and confidential discounting. Partnership Invoice Finance offers disclosed discounting, where you collect but customers know.

Are credit control services provided? With factoring, yes. The provider manages the ledger, collects and, as the British Business Bank notes, credit-checks potential customers. With discounting, no: you keep credit control. Some providers add optional credit control support, which Lloyds Bank lists alongside its discounting and factoring. Lloyds Bank describes up to 90% of invoice value available early, with a minimum turnover requirement set for each service. It can also move between full-ledger factoring and selective invoice finance.

What an invoice finance facility costs

The British Business Bank says a business will usually pay two charges, a service fee and a discount charge. They do different jobs:

• Service fee. This pays for running the facility and, with factoring, for the credit control. Close Brothers charges its fee as a percentage of turnover. The service fee is typically around 0.5% to 2% of the turnover handled by the facility.
• Discount charge. This is the cost of the money, like interest, charged on the funds you use for as long as they are outstanding. It is typically around 1.5% to 3% above the Bank of England base rate, and can be higher for factoring. Bank Rate was held at 3.75% on 29 July 2026, so a margin of 1.5% to 3% means roughly 5.25% to 6.75% a year (3.75 + 1.5 and 3.75 + 3).

One provider, Triver, publishes a flat 0.06% per day, which it describes as about 1.8% on a 30-day invoice, with a minimum upfront charge of 10 days' fees (at least £18) and no set-up or early repayment fee. Triver also asks for over £100,000 turnover, more than two years' trading and a UK limited company or LLP, so it is not an option for every business. Most funders agree their pricing only after seeing your ledger.

A worked example

These inputs are assumptions chosen from within the ranges above, not a quote. A £40,000 invoice, an 85% advance (£34,000), a Bank Rate of 3.75% plus a 2.5% margin (6.25% a year), and a service fee of 1% of the invoice value (£400). The discount charge is calculated on the £34,000 advanced, for the days it is outstanding: £34,000 × 6.25% × days ÷ 365.

Customer pays after	Discount charge	Service fee	Total cost	As % of the invoice	Cost per year on the £34,000 drawn
30 days	£174.66	£400	£574.66	1.44%	about 20.6%
60 days	£349.32	£400	£749.32	1.87%	about 13.4%
90 days	£523.97	£400	£923.97	2.31%	about 11.0%

On the 60-day invoice you receive £34,000 up front. When the customer pays £40,000, the £6,000 balance comes back less £749.32, which is £5,250.68. In total you receive £39,250.68 against £40,000 billed.

Three things stand out:

• The margin over Bank Rate looks modest, but the all-in rate is not. A margin of 2.5% over a 3.75% base is 6.25% a year. The 60-day invoice costs about 13.4% a year because the service fee is a flat slice of the invoice. Compare facilities on the total in pounds for an invoice you actually raise, not on the discount rate.
• The service fee does not shrink as the invoice is paid sooner. A quickly paid invoice costs less in pounds and more per year of borrowing.
• Your customers' payment speed drives the cost. Each extra 30 days in this example adds about £175 to the discount charge on one invoice.

If you also pay for credit control under factoring, part of that service fee replaces a cost you already carry (a credit controller's time). For discounting you carry that cost yourself, so be honest about it when comparing.

Factor rates

Factoring charges are known as a 'factor rate', based on the level of risk, the volume of invoices and the time credit is extended, among other things. The size of each invoice matters too, because it takes the same work to collect a small invoice as a large one, so fewer large invoices price better than many small ones. Factor rates vary from 0.5% to 5% of invoice value. The quote you receive depends on your customers and your volumes, not just on your own accounts.

The extras to look for

The headline pair of charges is rarely the whole bill. Common extras are arrangement fees, audit fees, minimum monthly charges, renewal fees and fees linked to funding individual invoices. Transaction transfer fees and exit penalties also appear. For selective facilities some providers charge set-up fees, usually between £100 and £500.

The cheapest-looking advance rate is not always the best deal if the contract has restrictive minimums. When you compare quotes, ask each funder to price the same illustrative invoice and to list every other charge in writing. This comparison list is a good one to work through:

• the total cost on a typical invoice
• the advance rate
• contract length and notice period
• concentration limits, meaning how much of your funding can come from one large customer
• service level

Be wary of anything that is not on the quote. Make sure there are no hidden audit or exit fees.

Selective invoice finance or a whole-ledger facility

A whole-ledger (or whole-turnover) facility assigns your entire debtor book. Every invoice you raise is financed through it, which gives the lender full visibility and usually means a minimum term. Bibby and Close Brothers are whole-ledger only, with no option to fund a single invoice.

Selective invoice finance lets you pick the customer accounts or individual invoices to fund. The British Business Bank says these methods will not necessarily provide finance on an ongoing basis, which makes them useful for occasional rather than ongoing working capital needs. Spot factoring is the single-invoice version. So the answer to whether you can fund a few selected invoices instead of the whole ledger is yes, with providers that offer it.

There is a price for that flexibility. The cost per invoice runs higher than a whole-ledger facility, but nothing is locked in. For a business with one large customer that pays slowly, a selective invoice arrangement can cost less in total than a whole-ledger facility you only partly use. Selective providers can work pay-as-you-go with no contract, where factoring or discounting is commonly on six-month or yearly terms.

A rough guide:

• Steady invoicing across many customers: whole ledger, because the lower per-invoice cost and the growth in availability pay off.
• Lumpy or seasonal invoicing, or one big slow payer: selective, accepting a higher cost per invoice.
• You want to try it first: selective or a facility with a trial period. Novuna offers a six-month trial.

Contract length, notice and exit

The British Business Bank says providers require an agreement for a minimum period. For ongoing facilities six months or a year is common, and it can be 12 or 24 months. Some terms are lighter. Metro Bank says customers need only give 28 days' notice to exit, and Bibby offers 28-day rolling contracts.

A long minimum period, a high minimum fee or a substantial exit charge can become expensive if your circumstances change. The risk is that you sign for the business you have in year one and find you need a different facility in year two. Before you sign, ask about:

• the minimum term and what happens at renewal
• the notice period and any exit or termination charge
• any minimum monthly or annual fee
• whether there is a personal guarantee, a debenture or other security. Invoice finance is primarily secured against the debtor book, but security requirements vary by lender, facility size and risk
• whether it is recourse or non-recourse, and what bad debt protection covers

If your customer does not pay on a recourse facility, you may need to repay the advance or replace the invoice. Non-recourse finance and bad debt protection reduce the impact of a customer's insolvency, within the policy terms and credit limits, but not every reason for non-payment. A disputed invoice can stay ineligible until the dispute is settled. Invoice finance changes when you get cash. It does not remove the need for sound credit control, clear contracts and accurate invoicing.

Are you eligible for invoice finance?

The tests are mostly about your customers and your records, not your own credit history. To be eligible for invoice finance, you need most of the following:

• You invoice other businesses on credit terms. The British Business Bank says invoice finance is normally only available to B2B traders. A lender will not necessarily turn you away if your customers are not businesses, but may offer less. Limited companies, LLPs and sole traders based in the UK or Ireland can qualify.
• Your customers pay within roughly 30 to 90 days. If customers take longer than 90 days, some providers may not approve you, so it is worth speaking to a few lenders.
• You have some trading history and decent records. Providers will want the latest accounts and details of outstanding invoices. A business that has only just started invoicing may be eligible with some lenders, though a pre-revenue business is not until it starts billing. Triver and another lender ask for two years' trading.
• Your customers are creditworthy. The advance percentage is usually set by the quality of the customers who owe you the money and the likelihood they will pay.
• You meet the turnover threshold. The British Business Bank says there is no formal minimum or maximum, but a traditional facility would generally not suit annual turnover below £300,000. For those businesses selective or spot finance may be better. Individual funders set their own floors: NatWest's discounting minimum is £300,000, Metro Bank serves turnover above £250,000, and Skipton says it structures confidential discounting for turnovers from £100,000. Some providers also set a minimum number of invoices a month.

On credit history, lenders often focus on your customers' creditworthiness rather than your business credit score, particularly for factoring. For sole traders and some partnerships lenders may also review personal credit, while company credit ratings are more relevant for limited companies. A credit check at application may still show on your credit report, as the British Business Bank notes.

Before you apply for invoice finance, have your latest accounts and an aged list of outstanding invoices to hand. Those two documents are what the British Business Bank says providers ask to see first.

The benefits of invoice finance, and the drawbacks

The British Business Bank lists the main benefits of invoice finance:

• The invoices are the security. That makes it a way to use an often-untapped asset, and generally means less reliance on other security.
• It scales. The facility grows as your sales grow, so you do not need to arrange new lending when you take on a large new customer.
• Flexibility. Beyond using the funds in the business, there are not normally restrictions on how you spend the money.
• No equity given away. It is a debt product, and it can work alongside term loans, asset-based lending and asset finance.
• Efficiency. With factoring, the provider functions as your credit controller, freeing up your time.

The drawbacks are just as real:

• Administration. It needs more active management than a loan, and you commit to a minimum period.
• Customer dependence. Depending on the terms, you may be held responsible if your customer fails to settle.
• Privacy. Under factoring, customers deal with the provider.
• No substitute for profitability. The British Business Bank says no form of commercial finance can make a fundamentally unprofitable business succeed in the medium or longer term.
• Cost and credit checks. Fees add up, and the application can leave a mark on your credit report.

Who should use invoice finance, and who should not

A business that should use invoice finance looks like this: it sells to other businesses on credit terms, issues a regular flow of invoices, and finds that growth creates a cash gap because wages, stock or subcontractors have to be paid before the customer does. It is commonly used by recruitment firms, wholesalers, manufacturers, transport businesses, professional services firms and contractors, depending on the trading model.

It is a poor fit when:

• Your customers are consumers. There is little for a provider to buy.
• The work is milestone-based or heavily contractual, or disputes are common. Disputed invoices are not eligible.
• You have a very small number of debtors. Concentration is a risk for the provider and a limit for you. A single-invoice facility may do the job better.
• The business is not profitable. Invoice finance advances your cash. You still have to repay it.
• Your sector is excluded. Some funders, for example Sallyport and Partnership Invoice Finance, do not fund construction customers, while others serve them.

Is invoice finance worth it for your cash flow?

It is worth it when the cash gap is a timing problem and the work financed earns a margin comfortably above what the facility costs. In the worked example the 60-day invoice cost £749.32 on £40,000, or 1.87% of the invoice. If the job carries a gross margin well above that and the alternative is turning work away, the cost is easy to justify. It can be the difference between taking on a new contract with confidence and turning work away because wages, suppliers or VAT fall due first.

The British Business Bank notes that many businesses report maintaining access to working capital as their main financial challenge, not overall profitability. That is the situation invoice finance is built for.

It is not worth it when margins are thin enough that roughly 2% of every invoice would erase them, when the gap is chronic rather than seasonal, or when you would be paying a facility's minimum charges on funds you rarely draw. A facility is a way to smooth business cash flow, not to repair it.

Invoice finance against other business finance

Invoice finance usually costs more per pound than traditional bank loans. Bank loans generally have longer repayment terms and lower interest rates, while an overdraft's interest rates can be high and it should not be used for long-term borrowing. What invoice finance offers is different. It is secured on your invoices, so it generally leans less on other security. It grows with sales, and it is repaid from your customers' payments rather than monthly instalments. The British Business Bank adds that it can sit alongside other lending.

That makes it a tool for growing businesses or those with uneven payment cycles. It is not a cheaper form of the same money. If the need is a one-off purchase, a term loan is usually the better match. If it is a rolling gap between delivering work and being paid, invoice finance fits better. For small businesses that have struggled to get a bank loan because of a limited trading record, invoice finance can be easier to qualify for.

Choosing an invoice finance provider

The British Business Bank says invoice finance companies range from specialist providers to banks and other financial institutions, and most are members of UK Finance's Invoice Finance and Asset-Based Lending group. Members commit to an independent Standards Framework, which includes a Code of Conduct and an independent complaints process. Bank approval often takes longer and needs more paperwork than at the independent factoring companies and fintech lenders.

When you compare each invoice finance provider, ask:

• what the advance rate is and when funds arrive
• who will contact your customers
• the total cost on an invoice like yours
• the minimum term, notice period and exit charges
• what happens if an invoice is paid late or disputed

A finance specialist can compare funder appetite for your sector and structure a facility around your debtor book. A sensible start is your aged debtor report alongside your upcoming commitments.

Frequently Asked Questions

Will my customers know I am using invoice finance, and who collects?

Under factoring they will, because the provider collects. Under confidential invoice discounting they generally will not, although payments may go into an account the lender controls. Some discounting is disclosed, so confirm which you are being offered.

Can I fund a few selected invoices instead of the whole ledger?

Yes, with a provider that offers selective or spot finance. You choose the accounts or invoices, pay a higher cost per invoice, and are not committed to financing everything you raise.

How quickly can I get the money?

Once a facility is running, advances are commonly made within 24 to 48 hours of submitting an invoice. Setting it up takes longer. The British Business Bank says it can take a bit of time, and Close Brothers' first drawdown is often about two weeks after approval.

Can I get invoice finance as a start-up or with poor credit?

Possibly. Providers weigh your customers' strength, your trading record and the size of your invoices, and some look hard at personal credit for sole traders. Minimum trading history and turnover vary by funder, so a decline from one provider is not the end.

Are invoice finance providers regulated?

Most providers in the UK are members of UK Finance. The British Business Bank says members commit to a Standards Framework, which includes a Code of Conduct and an independent complaints process.

If you want a facility priced against your own aged debtor list, that is the kind of work Deplexifi does.

Comparing providers on the discount rate alone. The flat service fee, minimum charges, minimum term and exit terms often decide the real cost, especially on fast-paying invoices.

Nothing here is regulated financial advice. Deplexifi arranges commercial finance for businesses — this article describes general lending practice and the published position of the sources listed below, not a recommendation for any individual business.