Invoice finance releases working capital against eligible money owed to your business by its customers. Rather than waiting for every invoice to reach its payment date, the company may be able to access part of the value earlier. The provider's checks, the structure, charges and what happens when customers pay all depend on the agreement.
How does invoice finance work?
- Your business supplies goods or services and raises an invoice on agreed credit terms.
- The invoice or sales ledger is reported to the finance provider.
- The provider may make an agreed amount available against eligible receivables.
- The customer pays in line with the collection arrangements in the agreement.
- The account is reconciled, including the provider's charges and any adjustments.
That is the broad pattern, not a promise of a particular advance or payment time. Providers can treat individual customers, disputed invoices, credit notes, concentration and overseas debts differently.
Factoring, invoice discounting or selective finance?
| Structure | Who normally manages collections? | What it may suit | What to check |
|---|---|---|---|
| Factoring | The provider normally supplies a credit-control or collections service | A business that wants funding and support managing its sales ledger | Customer contact, service standards, fees and how disputes are handled |
| Invoice discounting | Your business normally keeps control of collections | A business with suitable ledger systems and credit-control capability | Confidentiality, reporting, audits, controls and eligibility |
| Selective or single-invoice finance | Depends on the provider and agreement | A defined invoice or customer rather than the whole sales ledger | Availability, transaction fees, customer notification and recourse |
For a closer decision guide, see factoring versus invoice discounting. Product names are not always used consistently, so compare what the agreement actually does rather than relying on its label.
Which businesses may be a better fit?
Invoice finance is generally connected to completed business-to-business sales made on credit terms. A provider may look at your trading history, sales ledger, customer quality, invoice values, payment terms and how concentrated the ledger is among a few customers. It may also investigate disputes, credit notes, contractual set-off and existing security.
What does invoice finance cost?
Charges can include a service or facility fee, a finance charge on the amount used and separate costs for audits, electronic systems, credit protection, amendments or ending the agreement. Some facilities also have minimum charges or a minimum period.
Ask for a written illustration and compare:
- the total expected cost at the level you expect to use;
- minimum fees, review dates and notice periods;
- the advance calculation and any reserves or concentration limits;
- recourse if a customer pays late or does not pay;
- bad-debt protection, its exclusions and any excess;
- personal guarantees, debentures or other security;
- audit, legal, transfer and termination charges; and
- what happens if turnover falls or the ledger changes.
Invoice finance or a business loan?
Invoice finance can grow or shrink with eligible receivables and is closely tied to customer payments. A term loan normally provides a set amount with scheduled repayments. If the company does not regularly sell to other businesses on credit, a business loan or another working-capital route may be more relevant.
Before you enquire
It helps to have recent management information, an aged debtor report, customer and invoice details, bank statements, existing facility documents and a clear reason for the funding. Tell Mills Commercial Finance what your company needs so it can review whether there may be a relevant route. This is not an offer or approval, and it does not mean every structure on this page is available in every case.
Frequently asked questions
Will customers know that invoice finance is being used?
It depends on the structure and agreement. Factoring normally involves provider-led collections. Some invoice-discounting facilities may be confidential, while others are disclosed. Check the notices, payment instructions and confidentiality terms.
Does invoice finance protect against bad debts?
Not automatically. Some facilities include or offer credit protection, but exclusions, limits and excesses can apply. Without suitable protection, your business may remain responsible if a customer does not pay.
Is invoice finance regulated?
It depends on the agreement, parties and activities involved. Do not assume every commercial arrangement has the same protections. Where an activity is regulated, check the firm and its relevant permissions on the FCA Register.