Invoice finance
Invoice Finance for UK Businesses
When you invoice business customers on credit terms, the money for work you’ve already done can take weeks to arrive. Invoice finance lets a business release funds against those unpaid invoices instead of waiting for every customer to pay.
There are two main types: invoice factoring and invoice discounting. Some providers also fund individual invoices. Which one fits depends largely on who you want to collect payment, and whether you want your customers to be aware of the arrangement.
Wize Finance can help your business see which types of business finance may suit the cash tied up in your invoices, before you approach a provider.
Tell us roughly how much you invoice and how long customers take to pay. The team reviews your enquiry and discusses which type of invoice finance may fit.
What is invoice finance?
Invoice finance is funding linked to the money your business customers owe you. A provider makes an advance against unpaid invoices. When the customer pays, the provider takes back what it advanced, keeps its fees, and releases the rest to you.
It’s designed for businesses that sell to other businesses and give them time to pay. Because the funding is tied to your invoices, the amount available can move up and down with your sales, depending on how the facility is set up.
Invoice finance is usually set up as a facility. Some arrangements cover all your invoices (often called whole-ledger); others let you choose which invoices to fund.
A facility may cover
all your invoices selected ones
How invoice finance works: from invoice to cash
-
Before the invoice.
You buy stock or materials and do the work.
(Funding at this stage is Stock Finance, not invoice finance.)
-
Raise the invoice.
You deliver to a business customer and invoice them on agreed credit terms.
-
Receive an advance.
The provider advances an agreed portion of the invoice value.
-
Customer pays.
Your customer settles the invoice when it’s due.
-
Balance released.
The provider releases the remaining balance, less its agreed fees.
How steps 3–4 differ by type:
- Factoring
- Provider usually collects · Customer usually aware
- Discounting
- You usually collect · Usually confidential
- Provider collects
Invoice factoring:
the provider usually manages collection, and your customer usually pays the provider directly, so customers are usually aware a factor is involved.
- You collect
Invoice discounting:
you usually keep collecting payment yourself, and the arrangement is usually confidential. In many arrangements, customer payments run through an account the provider controls.
How much is advanced, what the fees are and how payments are routed all depend on the provider and the facility.
When invoice finance may fit
Invoice finance tends to fit businesses that:
- sell to other businesses on credit terms
- have cash tied up in invoices that are waiting to be paid
- are growing, so more cash is being tied up in unpaid invoices
- are working with larger customers that expect longer payment terms
It may fit less well where:
- most sales are to consumers or paid at the time of sale (a Merchant Cash Advance works from card takings rather than invoices)
- invoices are often disputed, or are paid in stages, or are subject to retentions
- one customer accounts for most of your invoices, since providers may limit how much they fund against a single customer
Invoice finance costs: what to compare
Invoice finance is usually priced in two parts: a fee for the service or facility, and a charge on the money advanced (sometimes called the discount charge). How they’re calculated varies, so compare the whole cost over how you’ll actually use the facility.
Before you agree a facility, compare:
Tell us what you need.
How Wize Finance works
Wize Finance uses the information you give us to understand the cash tied up in your invoices and what you need. Where appropriate, it introduces your business to a funding provider. The provider assesses the application and makes the decision.
After you submit your details, the Wize Finance team reviews your enquiry and contacts you to discuss your funding needs and next steps. Where appropriate, your details can then be shared with a suitable funding provider.
Start your enquiryFor an invoice finance enquiry, it helps to tell us:
- who your customers are (businesses, and roughly how many)
- your usual payment terms
- roughly how much is outstanding at any one time
- whether you’d prefer to keep collecting payments yourself
- whether you’d rather customers weren’t aware of the arrangement
Types of invoice finance
- Provider collects
Invoice factoring.
The provider usually takes over collecting payment from your customers, which can save time on chasing invoices. Customers usually know a factor is involved. → Invoice Factoring
- You collect
Invoice discounting.
You usually keep running your own credit control and collections, and the arrangement is usually confidential. → Invoice Discounting
- Selected invoices
Selective or single-invoice finance.
Some providers let you fund individual invoices, or a selection of them, rather than your whole sales ledger. It can suit occasional needs, such as one large invoice with long payment terms. Some providers call this spot factoring.
Invoice factoring vs invoice discounting
The main difference is who collects payment from your customers. That in turn affects whether your customers are aware of the arrangement.
Invoice factoring and invoice discounting compared
Factoring
Invoice factoring
- Who collects payment
- Usually the provider
- Do customers know?
- Usually yes
- Credit control
- Usually handled by the provider as part of the service
- How it’s usually structured
- The business sells its invoices to the provider
- May suit
- Businesses that would value help with collections
Discounting
Invoice discounting
- Who collects payment
- Usually you
- Do customers know?
- Usually not (confidential)
- Credit control
- Stays with your business
- How it’s usually structured
- The business borrows against its invoices
- May suit
- Businesses with established credit control processes
Providers set their own criteria and structures, and some offer variations of each type.
What happens if a customer doesn’t pay?
Check which applies, which customers it covers and what conditions apply, before you sign. Invoice Factoring explains recourse and non-recourse in more detail.
- Recourse
Under a recourse arrangement, if a customer doesn’t pay, your business typically has to repay the advance for that invoice or replace it with another.
- Non-recourse
Some facilities offer non-recourse terms or bad-debt protection, where the provider takes on some or all of that risk for approved customers, usually at extra cost and within set limits.
What providers may look at
Criteria vary between providers and facilities. They may look at:
-
Your customers and invoices: who your customers are and their payment record; how your invoices are spread across customers; your payment terms; whether invoices are disputed, staged or subject to retentions.
-
Your business: turnover, trading history and accounts; how you manage credit control; existing borrowing and security; the company’s and directors’ credit history.
-
Documents may include an aged debtors report, sales ledger details and recent accounts.
-
Security: providers may take security over the invoices and, in some cases, other company assets. Some may ask directors for a personal guarantee or an indemnity. Our guide to Business Loans Without a Personal Guarantee explains what a guarantee involves.
Invoice finance vs other ways to fund working capital
Invoice finance, a working capital loan, a business line of credit and stock finance compared
Invoice finance
- Linked to
- Unpaid invoices to business customers
- When in the cycle
- After you invoice
- Grows with sales?
- Can, depending on the facility
Working capital loan
- Linked to
- A set amount, not tied to invoices
- When in the cycle
- Any time
- Grows with sales?
- No, a fixed amount
Business line of credit
- Linked to
- An agreed limit you draw on
- When in the cycle
- Any time
- Grows with sales?
- Within the agreed limit
Stock finance
- Linked to
- Stock you buy before you sell it
- When in the cycle
- Before the sale
- Grows with sales?
- Depends on the facility
-
Need cash that isn’t tied to invoices? See Working Capital Loans.
-
Want a reusable limit for mixed costs? See Business Line of Credit.
-
Larger businesses sometimes combine invoices with other assets, such as stock or equipment, in one wider facility, often called asset-based lending.
-
Not sure which type of finance you need? Start with Business Loans.
Invoice finance FAQs
Is invoice finance a loan?
Not always. Invoice factoring is usually structured as selling your invoices to a provider. Invoice discounting is usually structured as borrowing against them. Either way, the funding is linked to money your customers owe you, rather than being a fixed lump sum.
Will my customers know I’m using invoice finance?
It depends on the type. With factoring, the provider usually collects payment, so customers usually know. Invoice discounting is usually confidential. Check how notification works before you agree a facility.
Can a small business use invoice finance?
It can. What matters to providers is usually who your customers are, how you invoice them and your business’s track record, rather than size alone. Criteria vary between providers, and Wize Finance can talk through what they may look at for your business.
Can I finance just one invoice?
Some providers offer selective or single-invoice finance, where you choose individual invoices to fund rather than your whole sales ledger. Availability and costs vary.
Does invoice finance work for businesses that sell to consumers?
Usually it’s designed for invoices to business customers. If you take card payments from consumers, a merchant cash advance works from card takings instead.
What’s the difference between invoice finance and stock finance?
Stock finance helps pay for stock before you sell it. Invoice finance works after you’ve invoiced, against money a customer owes you. Some businesses use both at different points in the same cycle.
Waiting on invoices to be paid?
Tell us about your customers, your payment terms and how much is tied up in unpaid invoices. Wize Finance can then help you see which types of finance may suit your business.
- your customers
- your payment terms
- how much is tied up