Invoice finance allows your business to borrow money against pending customer invoices. Lenders will advance a percentage and charge a service fee, and after you can pay the loan back, you’ll also need to pay back the interest they charged.

There are a few types of invoicing financing. Each provides access to cash from sales invoices; however, they work slightly differently. The most common types are:

1. Invoice Factoring: The factoring company takes control of the sales ledger operations of your business as a package of services.
2. Invoice Discounting: Like factoring, the sales ledger and credit control stay with your business. Your customers won’t be aware of the agreement.
3. With selective invoice finance, you choose which invoices to finance from a pool of available accounts.

Invoice finance, also known as “Invoice funding,” is available to any UK business. It offers funding to cover the invoices and pay suppliers on behalf of businesses, so their bills are paid on time.

Invoice finance gives businesses fast access to cash and helps businesses improve their cash flow. Compared to bank overdrafts or loans, invoice financing (also called factoring) is much more flexible because borrowers don’t need to repay the amount, they borrow in a specific period. You can borrow more as your business grows, so you never have to worry about running out of capital.

It is hard to provide a single figure for how much companies pay. The cost is usually calculated as a percentage of the business turnover, in addition to the annual discount rate (or sometimes called interest rate). Fees depend on the size of the business and how many customers they have. A company with more customers will typically have higher fees.

In invoice discounting, the initial cost is often higher; however, the fees are lower because invoice discounting doesn’t require credit control to be carried out by a financing company.

Once the lender agrees to provide you with a loan, they establish the conditions of your final charges. Lenders will consider factors like your type of business, creditworthiness, and the number of invoices. Sometimes their interest rates depend on the amount borrowed. If you plan on borrowing over £900,000 then other ways to fund your business (business loans, credit cards, overdrafts) might be a better option for you.

It can vary depending on the size and complexity of your application. The initial set-up of your invoice financing agreement will take anything from a few hours to a few days. You should have your company documentation ready on hand to avoid delays. Once everything is in place, you may have funds released from your invoices within 48 hours. Start comparing a range of invoice finance from top UK lenders here.