Compare Invoice Financing

What is invoice finance?

Invoice finance lets your business borrow money against pending customer invoices. The lender advances a percentage of the value of the invoices, sometimes within just 24 hours, and charges a service fee and interest.

There are few types of invoice financing. Each releases cash from invoices, but they operate slightly differently. The most common types are:

• Invoice factoring: The factoring company takes control of the sales ledger operations of your business, as a package of services.
• Invoice discounting: Similar to factoring, but the sales ledger and credit control stays with your business. Your customers won’t be aware of the agreement.
• Selective invoice finance: Also called spot factoring, this option lets you choose which invoice or customer account you want to finance.

You can use a specialist invoice financing company, bank or other financial institution for invoice finance, or a broker. There are also marketplace fintechs where you sell your invoices to investors via an online platform.

» MORE: A guide to invoice financing

How invoice financing works

The process depends on the type of financing you’re using, but generally:

• The business sends sales invoices to its customers and a copy to the finance provider.
• The provider pays an agreed percentage of the invoice value, which could be as much as 90% or even the full amount, into the business bank account.
• Depending on the agreement, the business or the provider sends reminders and correspondence about payment to the customer.
• Once the customer pays the full invoice amount, the provider releases the remaining amount, with their fees and charges deducted.

The loan isn't repaid until the original invoice has been settled by the customer.

Here’s an example. If 85% of a £50,000 customer invoice is released, your business would receive £42,500 up front.

When your customer pays what they owe in full, the remaining £7,500, minus total charges and fees of 3%, is paid into your business account. That means a total of £48,500 for your business, and £1,500 for the factoring company.

Can any UK business get invoice finance?

Invoice finance is open to many sectors and industries, but there are some eligibility requirements.

The lender will usually ask that your business:

• invoices business customers, not consumers
• meets minimum turnover requirements
• is a limited company or limited liability partnership
• sells on usual credit terms of 30 to 90 days
• has a strong credit history
• can show evidence of a trading history

But not all lenders ask that your business meets all these requirements, and rates and the application process vary. An invoice finance broker can help streamline the process by comparing a number of lenders that fit your criteria on your behalf.

Is invoice financing a good idea?

If late payment of invoices is affecting your cash flow, invoice financing could be an option. That’s because it can free up working capital sooner than waiting for customers to pay.

To decide if it would suit your business, make sure you’ve considered the pros and cons.

Advantages of invoice financing

• Quick access to working capital. Instead of waiting for weeks or months for customer payment, an agreed percentage of the invoice could be in your business bank account as soon as 24 hours after issuing it, once the agreement is set up.
• No fixed assets are needed. There is usually no need to offer assets as security for the loan. This might be helpful if your business has few fixed, physical assets.
• As your business grows, so does the amount you can borrow. The availability of finance is based on the value and quantity of your invoices. So as your revenue increases, so does the amount of funding you can access.
• It may be easier to get than other types of business loan. Your business credit history is considered, but the focus may be more on the creditworthiness of your customers and the value of the invoices, than issues such as a limited operating history.
• It can save you time. Some invoice financing options include complete outsourcing of your sales ledger, so you can spend the time on other areas of the business. The provider may automatically update you about payments and fees against each invoice through online accounting software.

Disadvantages of invoice financing

• You won’t receive the full value of the invoice. The lender will deduct fees and interest. And if you want to end the agreement early, you may be charged a termination fee, or be expected to give a notice period.
• The provider will usually carry out credit checks when you apply. This could affect your credit report. And depending on your agreement, if your customer doesn’t pay their invoice, the lender may hold you personally liable – this is known as recourse factoring. With non-recourse financing, the lender accepts the liability of your customer not paying.
• It may cost more than other types of business borrowing. Factoring fees may be higher than traditional business loans. You should compare a few providers to find the best value agreement for you.
• Your customer may know you’re financing their invoices. If the provider manages customer payments, your customers may be aware of the arrangement. It’s possible to keep this in-house, if you would rather keep it confidential, with invoice discounting.
• It’s usually just a short-term solution. Contracts are usually between 12 and 24 months, so it’s sensible to make preparations so cashflow isn’t an issue once the agreement ends.

» MORE: Different types of invoice finance

Can you get invoice finance with poor credit?

If you’re having trouble securing traditional finance for your business due to poor credit, it may be possible to access invoice financing. That’s because lenders tend to focus on the strength of your customers’ credit and payment history, along with the payment terms of the invoice.

Even so, they will usually run business credit checks and sometimes personal credit checks. Working to improve your business credit score is likely to give you access to more, and possibly cheaper, borrowing terms. The lender will still need to confirm that your business isn’t in financial difficulty, and may ask to see for proof, such as bank statements.

» MORE: A guide to unsecured business loans

How to apply for invoice financing

You can apply for invoice financing directly with a finance provider, or through a broker. Eligibility checks and applying can usually be done online, with some options to manage your account via an online platform.

The application process and documents required will depend on the lender, your business and the type of financing you’ve chosen. But you’ll usually be asked to provide financial information, including a list of your customers and value of outstanding invoices. You’ll also be asked what industry the business operates in, and your estimated annual turnover. The provider may also ask for financial statements for auditing and check your business credit report.

What is Newable and what services does it provide?

Newable Finance is a broker that offers financial services to UK small and medium-sized businesses (SMEs), including bridging loans, asset finance and invoice finance.

Newable was founded as Greater London Enterprise in 1982 and rebranded as Newable in 2016. It’s authorised and regulated by the Financial Conduct Authority (FCA).

How much can I borrow

How much you are advanced on each invoice depends on the deal you agree with the lender at the outset. When deciding on their charges, a provider will look at factors including:

• your type of business
• the creditworthiness and reliability of your customers
• the number of invoices you expect to process
• the typical value of your invoices

If you’re looking to finance more than £1 million, other sources of funding, such as business loans, credit cards or overdrafts, may be more suitable for your business.

Fees and costs of invoice financing

Invoice financing isn’t a free service, and charges vary between providers. What you pay may depend on a number of factors, such as your sector, trading history, the value and volume of your invoices, and how long your customers take to pay.

You’ll pay a discount charge for releasing the cash, as a percentage of the invoice value. You’ll also pay a service charge, also called a credit management fee, for the arrangement. If you’re outsourcing management of customer accounts and credit control, the service charge will be higher than if you keep everything in-house.

There may also be additional costs, such as a termination fee if you want to end your agreement early, and other charges for putting the facility in place, checking the business finances, overdue fees if customers don’t pay up on time, and credit protection fees. So it’s crucial to read the terms of the agreement carefully, so you’re aware of the actual cost.

While fees are important, you’ll also want to be sure of the quality of service. So take the time to compare your options and check customer feedback. If the lender will be dealing directly with your customers about payment, this may be a key consideration.

How long does it take to get invoice financing?

The initial set-up of your invoice financing agreement could take anything from a few hours to a week, depending on the complexity of your business, the provider, and how you apply. If you’re applying for spot factoring, it may take longer. Make sure you have all the documentation ready, to avoid delays on your part.

Once everything is in place, you may have funds released from your invoices within 24 to 48 hours.

Invoice financing and confidentiality

If your business uses invoice discounting, you’ll maintain control of your sales ledger and collect customer payments. This means the agreement will remain confidential and shouldn’t affect client relationships.

Invoice factoring is a whole package of services, which involves outsourcing these services to the factoring company. This means your customers will be aware of the arrangement, as the factoring company will be dealing with them directly about payments.

Even so, arrangements can be flexible. It’s possible to get confidential invoice factoring, where the provider manages the credit control, but uses your business branding. That way, the customer isn’t aware of the arrangement.

Alternatives to invoice finance

If you’re looking to boost everyday cash flow in your business, invoice financing isn’t the only option. It depends what you need the funding for, but other types of financing include:

• business loans
• business credit cards
• asset financing
• peer-to-peer lending
• business bank account overdrafts

It’s important to research your options carefully and consider affordability before deciding which type of funding is best for your business. Do a cost-benefit analysis before taking out any loan, and be clear about the total interest you would be paying.

You may also want to look at the latest small business grants available for growing businesses.

» MORE: Funding to expand your business

Invoice Financing FAQ