{"id":1153,"date":"2022-07-06T00:00:00","date_gmt":"2022-07-06T00:00:00","guid":{"rendered":"https:\/\/www.simplybusiness.co.uk\/knowledge\/articles\/what-is-invoice-finance\/"},"modified":"2025-10-06T15:11:42","modified_gmt":"2025-10-06T15:11:42","slug":"what-is-invoice-finance","status":"publish","type":"knowledge","link":"https:\/\/www.simplybusiness.co.uk\/knowledge\/funding\/what-is-invoice-finance\/","title":{"rendered":"Invoice financing \u2013 how can you use it as business finance?"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Invoice finance can be used to access cash quickly while you wait for customers to pay you. Whether you need to pay suppliers or employees, or reinvest to grow your business, invoice financing can be a quick way to boost <a href=\"\/knowledge\/cash-flow\/what-is-a-cash-flow-forecast\/\" data-type=\"knowledge\" data-id=\"972\">cash flow<\/a>.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"wp-block-list-item\"><a href=\"\/knowledge\/tech\/best-invoice-app-for-small-businesses\/\" data-type=\"knowledge\" data-id=\"1337\"><strong>The best invoice apps for small businesses<\/strong><\/a><\/li>\n\n\n\n<li class=\"wp-block-list-item\"><a href=\"\/knowledge\/banking\/best-small-business-bank-account\/\" data-type=\"knowledge\" data-id=\"1332\"><strong>Which bank has the best business bank account?<\/strong><\/a><\/li>\n\n\n\n<li class=\"wp-block-list-item\"><a href=\"\/knowledge\/income\/balance-sheet-template\/\" data-type=\"knowledge\" data-id=\"1105\"><strong>How to do a balance sheet and download a free template<\/strong><\/a><\/li>\n\n\n\n<li class=\"wp-block-list-item\"><a href=\"https:\/\/www.simplybusiness.co.uk\/business-insurance\/faq\/what-is-public-liability-insurance\/\"><strong>What does public liability insurance cover?<\/strong><\/a><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">If you regularly send <a href=\"\/knowledge\/cash-flow\/how-to-write-an-invoice\/\" data-type=\"knowledge\" data-id=\"1461\">invoices<\/a> for work you\u2019ve done, you know that <a href=\"\/knowledge\/cash-flow\/could-ai-help-you-chase-unpaid-invoices\/\" data-type=\"knowledge\" data-id=\"1474\">chasing overdue invoices<\/a> and managing your finances while you wait for payment can be challenging.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">And depending on your payment terms, it might be 30 days (or sometimes up to 90 days) before a client pays you after you\u2019ve issued the invoice.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Here\u2019s how invoice financing can help your business manage cash flow.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"whatisinvoicefinancing\">What is invoice finance?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Invoice financing allows you to sell your unpaid invoices to a third-party, who will then lend you up to 95 per cent of the value of those unpaid invoices up front.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It\u2019s a short-term business finance option, plugging the gap between invoice payments and boosting your cash flow.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As an alternative to getting a <a href=\"\/knowledge\/funding\/how-to-apply-for-a-small-business-loan\/\" data-type=\"knowledge\" data-id=\"918\">business loan<\/a>, it can be a quicker way to access cash. The money can sometimes be available within 24 hours. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But invoice financing isn\u2019t without risk in the long-term, so you should think about whether it\u2019s right for you and your business.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"howdoesinvoicefinancingwork\">How does invoice financing work?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">There are two types of invoice financing. Here\u2019s an overview of invoice discounting vs factoring:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"1invoicefactoring\">1. What is invoice factoring?<\/h3>\n\n\n\n<div id=\"nba-body-001\">\n<\/div>\n\n\n\n<p class=\"wp-block-paragraph\">The lender will have control of chasing invoice payments and can credit check potential customers, giving you more time to focus on running your business. This does mean your customers will know you\u2019re using a finance provider though, so make sure you\u2019re happy with the lender\u2019s approach.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Usually the lender will loan you 70 to 85 per cent of the invoice up front, and pay you the remaining amount (minus interest and fees) when the customer pays the invoice.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>An example<\/strong>:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If you have an unpaid invoice for \u00a3200, you&#8217;ll receive \u00a3140-\u00a3170 up front from the lender and then approximately \u00a330-\u00a360, minus any fees, once the invoice has been paid.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"2invoicediscounting\">2. What is invoice discounting?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">This is intended for businesses with higher <a href=\"\/knowledge\/business-tax\/what-is-business-turnover\/\" data-type=\"knowledge\" data-id=\"1577\">turnover<\/a>, offering them more control (but greater admin) as they\u2019ll be responsible for chasing payment.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Here you can get an advance of up to 95 per cent of the invoice amount, with the rest paid (minus interest and fees) when the customer pays.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>An example:<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If you have an unpaid invoice for \u00a3500, you&#8217;ll receive \u00a3475 up front and then the remaining \u00a325, minus any fees, once the invoice has been paid.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"financeforindividualinvoicesorcustomers\">Finance for individual invoices or customers<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Another option is to use \u2018select invoice finance\u2019 or \u2018spot factoring\u2019. This allows you to select which invoices and customers you want funding for, so you only use the lender when you need to.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Select invoice finance<\/strong> \u2013 choose which customers you want to finance (for example, if you have a client that regularly fails to pay invoices on time).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Spot factoring<\/strong> \u2013 choose which invoices you want funding for (for example, a large project with expensive materials, or invoices with longer payment terms).  <\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"howmuchdoesinvoicefinancingcost\">What are invoice financing costs?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Be aware that there\u2019s usually a monthly cost associated with invoice financing. Other costs to look out for include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"wp-block-list-item\"><strong>factor fees<\/strong> \u2013 this cost is for each invoice, normally 1.5-5 per cent of the invoice value<\/li>\n\n\n\n<li class=\"wp-block-list-item\"><strong>credit check fees<\/strong> \u2013 if your lender wants to carry out a background check on you and your customers, the cost ranges from 0.2 to 2.5 per cent of gross turnover<\/li>\n\n\n\n<li class=\"wp-block-list-item\"><strong>renewal fee<\/strong> \u2013 some companies charge a fee to renew your account at the end of a contract, but many in the UK don&#8217;t <\/li>\n\n\n\n<li class=\"wp-block-list-item\"><strong>termination fee<\/strong> \u2013 if you have a contract with an invoice finance lender for a certain period of time, they might charge you if you end the contract earlier (this depends on the size of your invoice finance facility) <\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"benefits\">Invoice finance benefits<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Some of the advantages to using invoice finance include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"wp-block-list-item\"><strong>quick access to cash<\/strong> \u2013 you can be paid as soon as you send your invoice rather than waiting for your client to pay you (usually within one or two days)<\/li>\n\n\n\n<li class=\"wp-block-list-item\"><strong>no risk to assets<\/strong> \u2013 unlike a business loan, invoice financing isn\u2019t a risk to your assets as the loan is based on outstanding invoices<\/li>\n\n\n\n<li class=\"wp-block-list-item\"><strong>opens up investment opportunities<\/strong> \u2013 if you\u2019re a new company and want to grow your business more quickly, a cash injection based on unpaid invoices can help you invest and grow more quickly<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"risks\">Invoice finance risks<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">If you\u2019re considering invoice finance for your business, make sure you\u2019re aware of some of the drawbacks and long-term implications, too:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li class=\"wp-block-list-item\"><strong>your customers must be other businesses<\/strong> \u2013 invoice financing is restricted to invoices sent to other businesses rather than the general public<\/li>\n\n\n\n<li class=\"wp-block-list-item\"><strong>long-term costs<\/strong> \u2013 make sure you\u2019re aware of the rate of interest, processing costs, and any hidden fees, as this can all add up over time<\/li>\n\n\n\n<li class=\"wp-block-list-item\"><strong>risk of damaging client relationships<\/strong> \u2013 if you use invoice factoring, you won\u2019t be in control of collecting the invoice payments from your customers, the lender will. This could potentially damage the trust and relationship you have with your clients<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"financialresources\">Resources to help you with business finance<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">You might also find it useful to check out our guides on <a href=\"\/knowledge\/funding\/how-to-apply-for-a-small-business-loan\/\" data-type=\"knowledge\" data-id=\"918\">how to apply for a business loan<\/a> and <a href=\"\/knowledge\/income\/how-to-calculate-profit-margin\/\" data-type=\"knowledge\" data-id=\"843\">how to increase profit<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">We also have templates to help you create a <a href=\"\/knowledge\/income\/how-to-budget-calculator-and-guide-for-the-self-employed\/\" data-type=\"knowledge\" data-id=\"956\">self-employed budget<\/a> and a <a href=\"\/knowledge\/income\/balance-sheet-template\/\" data-type=\"knowledge\" data-id=\"1105\">balance sheet<\/a>.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe loading=\"lazy\" title=\"How to make an invoice for small business owners\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/p7rbIKPohuM?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Business finance is complicated, so you should speak to a financial advisor or invoice finance broker if you\u2019re unsure about anything.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Is there anything else you\u2019d like to know about invoice finance? Let us know in the comments.<\/strong><\/p>\n\n\n\n<div class=\"wp-block-group has-azure-200-background-color has-background has-global-padding is-layout-constrained wp-container-core-group-is-layout-94e519ba wp-block-group-is-layout-constrained\" style=\"padding-top:var(--wp--preset--spacing--80);padding-right:var(--wp--preset--spacing--40);padding-bottom:var(--wp--preset--spacing--80);padding-left:var(--wp--preset--spacing--40)\">\n<h3 class=\"wp-block-heading has-text-align-center\" id=\"lookingforselfemployedinsurance\">Looking for self-employed insurance?<\/h3>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\">With Simply Business you can build a single <a href=\"\/business-insurance\/self-employed-insurance\/\">self employed insurance<\/a> policy combining the covers that are relevant to you. Whether it&#8217;s <a href=\"\/business-insurance\/public-liability-insurance\/\">public liability insurance<\/a>, <a href=\"\/business-insurance\/professional-indemnity-insurance\/\">professional indemnity<\/a> or whatever else you need, we&#8217;ll run you a quick quote online, and let you decide if we&#8217;re a good fit.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-a89b3969 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/quote.simplybusiness.co.uk\/business\">Start your quote<\/a><\/div>\n<\/div>\n<\/div>\n\n\n\n<div id=\"nba-body-end\">\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Invoice financing is a way to boost cash flow by getting a third-party lender to pay you the value of your unpaid invoices up front. Find out how it works.<\/p>\n","protected":false},"author":3,"featured_media":26281,"comment_status":"open","ping_status":"closed","template":"","meta":{"sb_hreflang":"","sb_hreflang_url":"","disable_breadcrumbs":false,"sb_breadcrumbs":[],"sb_reviewed_by":"","sb_review_date":"","sb_enable_content_gating":true,"footnotes":""},"categories":[330,336,110],"hidden-category":[],"coauthors":[25],"class_list":["post-1153","knowledge","type-knowledge","status-publish","has-post-thumbnail","hentry","category-funding","category-business-structure","category-business-news"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.2 (Yoast SEO v27.2) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Invoice finance: a guide for small businesses<\/title>\n<meta name=\"description\" content=\"Invoice financing is a way to boost cash flow by getting a third-party lender to pay you the value of your unpaid invoices up front. 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