Invoice Finance UK: How It Works, What It Costs

You raise an invoice to a customer on normal credit terms. The finance provider advances you a percentage of that invoice value, typically 80% to 90%, sometimes up to 95% from specialists, within 24 hours. When the customer pays, the provider releases the remaining balance minus their fees. The facility revolves: as old invoices are collected and new ones raised, the available funding line moves with your sales.

The 90% headline advance is not the same as 90% of cash in your account the same week. Ineligible debt, debtor concentration caps, aged-debt reserves, and credit-note or dilution reserves all reduce what actually lands. A quoted advance rate is the ceiling, not the guarantee.

Factoring vs invoice discounting

This is the distinction that matters most when comparing invoice finance factoring against other structures.

Factoring: the provider takes over credit control and collections, and this is normally disclosed to your customers. Invoices carry a notice of assignment and payment goes to a controlled account. It suits businesses without an established credit control function, or those happy to outsource it.

Invoice discounting: you keep collections in-house. It can be run confidentially, so customers are not aware you are using it, but the provider expects stronger ledger controls, regular audits, and a track record of collecting your own debt reliably. This is why discounting is typically only available to more established businesses, while factoring is more accessible to startups and smaller ledgers.

Selective or spot invoice finance sits alongside both: you fund individual invoices rather than the whole ledger, at a higher unit cost, useful when you only occasionally need the cash.

Invoice finance suits businesses with genuine B2B trade receivables: completed, undisputed sales on credit terms to reasonably diversified customers. It works well for businesses growing faster than their cash conversion cycle allows, businesses with debtor days above 45 to 60, and businesses that would otherwise turn down orders for lack of working capital. Startups can use factoring, since the provider is mainly testing whether real receivables get created and paid, though expect higher fees and tighter controls.

It does not suit businesses where the underlying debt is not yet fundable. Construction applications before certification, unapproved recruitment timesheets, sale-or-return goods, and invoices without a valid purchase order are commonly declined or heavily discounted. A single debtor above roughly 25% to 30% of your ledger can cap the facility or kill appetite even when that customer is large and reliable. B2C sales, related-party balances, and invoices older than 90 to 120 days are typically excluded outright. If your real problem is thin margins or persistent losses rather than a timing gap, invoice finance will not fix the underlying economics, it will just add a financing cost on top.

There is no single cheapest provider across every business. Banks generally win on price for clean, established, diversified ledgers. Specialists win on speed, startup acceptance, sector knowledge, and flexibility on structure.

High-street and business banks: Lloyds Bank Commercial Finance, RBS Invoice Finance (NatWest), Metro Bank, HSBC Invoice Finance, Santander UK, Barclays. Lowest margins usually go here, but underwriting is more formal and onboarding slower, typically 2 to 6 weeks.

Specialist bank-owned and institutional: Close Brothers Invoice Finance, Aldermore, Novuna Business Cash Flow, Skipton Business Finance, Secure Trust Bank, Shawbrook. Relationship-led, often more flexible by sector than the clearing banks.

Independent specialists: Bibby Financial Services, Ultimate Finance, eCapital Commercial Finance, Pulse Cashflow Finance, Regency Factors, Time Finance. Better fit for startups, turnarounds, and smaller or more complex ledgers, generally at a higher price but with faster, more flexible decisions. Ultimate advertises setup in around five working days and facilities up to £10 million.

Fintech and selective platforms: Kriya (now part of Allica Bank, following the October 2025 acquisition), Accelerated Payments. Pay-as-you-go or selective invoice funding with faster accounting-system integration, usually at a higher unit cost than well-priced whole-turnover finance.

Sector specialists: Sonovate for recruitment, with construction-specific teams at Bibby and Ultimate. These bundle funding with payroll, timesheet, or credit-control services, so compare the whole platform fee, not the finance margin in isolation.

Mid-market asset-based lending: IGF, ABN AMRO Asset Based Finance, BNP Paribas Commercial Finance, PNC Business Credit, Investec, Arbuthnot Commercial ABL. Relevant from roughly £1 million in facility size upward, and often used for acquisitions, buyouts, or restructurings alongside receivables finance. Provider consolidation is active in this market, with eCapital acquiring Optimum SME Finance in October 2024 and Allica's acquisition of Kriya both aimed at scaling SME working capital lending.

Brokers are usually paid commission by the funder they place you with. Ask for written disclosure of any broker fee, lender commission, and whether the panel is whole-of-market or restricted before you commit.