Invoice finance is an umbrella term for any facility that advances cash against a business’s unpaid invoices – including invoice factoring, invoice discounting, selective invoice finance, and asset-based lending. In 2026, UK businesses use invoice finance to release an average of 80–90% of invoice value within 24 hours of raising a bill, without waiting the standard 30–90-day payment terms. Total UK invoice finance utilisation exceeded £20 billion in outstanding balances in 2025, according to UK Finance data.
- Invoice finance advances 70-90% of invoice value - Access immediate cash flow while waiting for customer payments within 24 hours
- Factoring costs 1.5-3% monthly vs discounting at 0.5-2% - Choose between full service factoring or confidential invoice discounting
- SMEs with £100k+ annual turnover benefit most - Particularly effective for businesses with 30-90 day payment terms from customers
- Bad debt protection available with factoring services - Providers manage collections & offer credit insurance, unlike basic invoice discounting
- Setup fees range £500-2,000 plus ongoing charges - Compare providers as rates vary significantly based on turnover & industry risk
What Is Invoice Finance?
Invoice finance is a type of short-term business borrowing where a finance provider advances a percentage (typically 80–90%) of the value of your unpaid sales invoices. Instead of waiting 30, 60, or 90 days for your customers to pay, you access most of the cash immediately after raising the invoice. The remaining balance (minus fees) is released when your customer pays. Invoice finance is available as factoring (where the provider manages credit control) or discounting (where you retain credit control and the arrangement is confidential).
You can compare options in our Asset Finance UK. See our Working Capital Finance for the full picture. For more on this, read our RBS FacFlow Invoice Finance Review. Our Pulse Finance Review covers this in depth. We explore this further in our Close Brothers Invoice Finance Review. Check our Business Overdraft UK for a closer look.
Invoice Finance vs Invoice Factoring vs Invoice Discounting
Invoice finance is the parent category. Invoice factoring is a type of invoice finance where the lender manages your sales ledger and credit control – your customers are aware of the arrangement. Invoice discounting is a type of invoice finance where you retain full credit control and the facility is confidential – your customers pay you directly, unaware of any third-party involvement. Both advance 80–90% of invoice value within 24 hours; the difference is who manages collections and whether customers know. Our Invoice Factoring UK has the latest figures. For a detailed comparison, see our Invoice Discounting UK.
| Feature | Invoice Factoring | Invoice Discounting | Selective Invoice Finance |
|---|---|---|---|
| Credit control | Provider manages | Business manages | Business manages |
| Confidential? | No – customers know | Yes – customers unaware | Usually yes |
| Whole ledger? | Typically yes | Typically yes | No – per invoice |
| Min. turnover | £50K–£350K typical | £500K–£2M typical | £100K+ |
| Best for | SMEs, startups, construction | Established, larger businesses | Occasional cash flow needs |
How Does Invoice Finance Work?
The basic process: (1) You raise an invoice to your business customer on standard payment terms (30–90 days). (2) You submit the invoice to your invoice finance provider. (3) The provider advances 80–90% of the invoice value – typically within 24 hours. (4) Your customer pays the invoice when it falls due (either to the provider directly in factoring, or to a trust account in discounting). (5) The provider releases the remaining balance to you, minus their fees. The cycle repeats for each invoice or batch of invoices uploaded.
Invoice Finance Rates and Fees UK 2026
Invoice finance has two cost components: (1) a discount charge – equivalent to interest on the amount advanced, typically 1.75–4.5% above the Bank of England base rate (currently 3.75%), meaning an effective annual rate of approximately 5.5–8.25% on drawn balances; and (2) a service charge – a percentage of turnover (0.1–3% for discounting; 0.5–3% for factoring) covering administration and, in factoring, credit control. Selective invoice finance charges a flat fee per invoice (1–3% of invoice value) with no monthly commitment. Always compare total annual cost, not the headline advance rate. Our Best Invoice Finance Companies UK 2026 breaks this down further.
Who Is Invoice Finance For?
Invoice finance is designed for B2B businesses that issue invoices on standard payment terms and experience cash flow gaps between raising invoices and receiving payment. It is particularly common in: recruitment (weekly payroll funded by 30-day invoices), construction (stage payment gaps), logistics and transport (fuel and driver costs ahead of 60-day payment terms), manufacturing (raw material costs vs 90-day buyer terms), and professional services. It is not suitable for B2C businesses, cash-on-delivery businesses, or businesses that do not invoice other businesses on deferred payment terms.
Pros and Cons
