Invoice Finance Explained: Factoring & Discounting for Immediate Cash Flow

Invoice finance is a cash-flow solution where you sell your unpaid invoices to a lender (factor) at a discount. You receive 85% of the invoice value within 24 hours, then the factor collects payment from your customer. When the customer pays, you receive the remaining 15% minus the factor's fee (typically 1.5–3% of invoice value).

• Day 1: You issue an invoice to a customer (payment due in 30–90 days)
• Day 1: Submit the invoice to your invoice finance provider
• Day 1: Receive 85% advance within 24 hours (in your bank account)
• Day 30–90: Customer pays the factor directly
• Day 31–91: You receive the remaining 15% minus the fee (e.g., 15% – 2.5% fee = 12.5% to you)
• Cost: You paid 2.5% to convert a 30–90 day payment into same-day cash

• Factoring (disclosed): Factor contacts your customer, collects payment directly. Customers know you're using factoring. Advance: 75–85%. Cost: 2–3.5%. Best for: B2B, where customer creditworthiness is key.
• Discounting (confidential): You collect payment from customers; factor doesn't contact them. Customers don't know you're using invoice finance. Advance: 80–90%. Cost: 1.5–2.5%. Best for: Businesses wanting to hide financing (e.g., SMEs in competitive markets).

• Recourse: If customer doesn't pay, you're liable to repay the factor. Lower cost (1.5–2.5%). Best for: Businesses confident in customer creditworthiness.
• Non-recourse: If customer doesn't pay (not your fault), factor absorbs the loss. Higher cost (2.5–4%). Best for: Businesses with risky customer base or high bad-debt exposure.

• B2B service providers: Lawyers, accountants, consultants (long invoicing cycles, client payment delays)
• Recruitment & staffing: Temp agencies with weekly payroll, monthly client invoices
• Wholesalers & distributors: Sell on 30–60 day terms; need cash for new stock purchases
• Construction & contractors: Project invoices, client payment delays 60–90 days
• E-commerce & retail: Wholesale customers pay slower than retail customers
• Manufacturing: Long payment cycles, need working capital between orders

Fee-based (percentage): 1.5–3% of invoice value. Administration fee: £30–£100/month. Interest on advances: Usually not charged (fee covers it). Example: £100K invoice at 2.5% = £2,500 cost. You net £97,500 (£85K advance + £12.5K when paid). Cost per day: £2,500 ÷ 30 days = £83/day.

• Invoice finance: Use specific invoices only. Cost: 1.5–3% per invoice. Speed: 24-hour advances. Best for: Matching invoice payment to funding need.
• Business loan: Borrow lump sum. Cost: 4–10% annual interest. Speed: 3–7 days. Best for: General working capital, not invoice-specific.
• Overdraft: Borrow up to agreed limit. Cost: 5–20% interest. Speed: Instant. Best for: Emergencies, short-term gaps. Expensive if used long-term.

• Day 1: Apply online or by phone
• Day 1–2: Credit check on you and your customers
• Day 2: Offer issued (approval in 24–48 hours)
• Day 3: Account setup & first advance within 24 hours of approval
• Ongoing: Submit invoices as issued; receive advances within 24 hours

• Recruitment & Staffing: Temp agencies (weekly payroll, monthly invoices)
• Construction & Contracting: Project invoicing, client payment delays
• Professional Services: Law firms, accountants (case costs, fee delays)
• Wholesale & Distribution: B2B payment terms (30–90 days)
• Manufacturing: Long production cycles, customer payment delays
• E-commerce: Wholesale customers with extended terms
• Transport & Logistics: Invoice-based billing, slow-paying clients