Invoice Finance

Invoice finance is a form of flexible commercial finance that is available to businesses that trade with other businesses on credit terms. It is available to businesses in many sectors and across the UK.

Client businesses with a combined turnover of more than £300 billion are supported by invoice finance products and at any point in time UK Finance’s Invoice Finance and Asset-Based Lending members will be advancing over £20 billion to UK businesses.

Invoice finance is the provision of finance to businesses against their debtor book: the debts owed to them by their customers. Such business-to-business debts will normally be represented by invoices which is where the main term for these types of finance in the UK comes from. The two best known types of invoice finance are factoring and invoice discounting.

A factoring facility will normally be disclosed to customers of the client business as the finance provider will be providing credit management services to the client and collecting the debts directly. An invoice discounting facility will often be undisclosed and the client will continue to collect payments from their customers directly.

Invoice finance enables client businesses to access prepayment of the amounts due to them almost as soon as an invoice has been issued. This allows them to better manage their cashflow by bridging the gap between doing the work and getting paid for it. Invoice finance can help client businesses achieve more predictable cashflow and manage some of the risks that poor payment practices bring.

Most invoice finance in the UK is provided on a ‘whole turnover’ basis. This means as a client business provides goods and services and issues invoices these are assigned to the invoice finance provider automatically. This generates funding available for the business that it can draw down as required. This will typically be up to 80 or 90 per cent of the value of the invoices available straight away with the balance of the value of the invoices made available to the client when their customers settle the invoices.

The facilities are more flexible than other types of lending as the amount of finance released by the facilities tracks the growth in the client business so it may not be necessary to rearrange finance facilities as the business evolves. In addition, the focus on the debtor book for repayment means the products can complement other forms of lending.

Some providers will also provide single or selective invoice finance where they will advance against a single or a number of invoices rather than the whole turnover. This may be appropriate for businesses with occasional cashflow requirements.

Products are available from a diverse range of financial institutions, from banks to specialists. UK Finance and the independent Professional Standards Council maintain an independent Standards Framework, setting the standards the industry works to and enabling businesses to use these products with confidence.

Find out more here.