How Invoice Finance Works in the UK 2026
Market Invoice is an independent UK invoice finance comparison site that explains how invoice finance works across 89 UK factoring and discounting providers.
Invoice finance is a UK working-capital product where a provider advances 70-95% of the value of your unpaid B2B invoices, typically within 24 hours of submission. UK Finance says its members provide well over £20 billion to tens of thousands of UK businesses at any one time, across construction, recruitment, manufacturing, transport and more.
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Invoice finance advances 70-95% of unpaid B2B invoices within 24 hours. The provider takes a fee of 0.5-3% of invoice value. When your customer pays, you receive the remaining balance minus fees. More detail + scope
This page covers
What invoice finance is, how the process works step-by-step, types available, typical costs, eligibility requirements, pros and cons
Not covered here
Individual provider reviews (see /providers/), industry-specific guides (see /industries/), cost calculator (see /calculator/)
What Is Invoice Finance?
Invoice finance is a funding method where a business sells or pledges its unpaid invoices to a finance provider in exchange for an immediate cash advance. Instead of waiting 30, 60, or 90 days for customers to pay, you receive the majority of the invoice value upfront.
It is not a loan. The funding is secured against your invoices (receivables), not your assets or personal guarantee. This makes it accessible to businesses that may not qualify for traditional bank lending, including startups and those with poor credit history.
Late payment and the cash flow gaps it creates are a key driver of demand for invoice-based funding.
For many SMEs, invoice finance is now a first-choice working capital facility rather than a last resort, because the funding available grows with sales in a way an overdraft does not.
How the Process Works
You invoice your customer
Deliver your goods or services and send your invoice as normal. Submit a copy to your finance provider (usually via an online portal or accounting integration).
Provider advances 70-95%
Within 24 hours (often same day), the provider deposits the advance into your bank account. The exact percentage depends on your industry, customer quality, and facility terms.
Customer pays the invoice
Your customer pays on their normal terms (30, 60, or 90 days). With factoring, they pay the finance provider directly. With discounting, they pay you.
You receive the balance
Once the customer pays, the provider releases the remaining balance to you, minus their fees (typically 0.5-3% of the invoice value).
Types of Invoice Finance
The two main types are invoice factoring and invoice discounting. The core difference is who runs credit control: with factoring the provider chases your customers, with discounting you keep collections in-house and the facility stays confidential. Our full invoice factoring vs invoice discounting comparison breaks down cost, minimum turnover, and which one suits your business.
| Type | Credit Control | Customer Knows? | Min Turnover |
|---|---|---|---|
| Invoice Factoring | Provider manages | Yes | £50k+ |
| Invoice Discounting | You manage | No | £500k+ |
| Confidential Discounting | You manage | No | £500k+ |
| Selective / Spot Factoring | Varies | Varies | No minimum |
| Export Factoring | Provider manages | Yes | £100k+ |
A note on "bill finance" and "bill discounting"
If you searched for bill finance or bill discounting, invoice finance is almost certainly the product you mean: in everyday UK usage the terms are synonyms for raising cash against unpaid customer bills. Strictly, bill discounting is the older trade-finance product where a bank advances against a bill of exchange or promissory note, most often in international trade. UK SMEs comparing options domestically are choosing between invoice factoring and invoice discounting, exactly as set out in the table above.
What Invoice Finance Costs
Invoice finance has two main charges: a service charge (0.5-3% of invoice value) and a discount charge (1-3% above the Bank of England base rate on the amount advanced). On £100,000 of invoices a month with an 85% advance rate, typical monthly costs range from about £850 to £3,500, assuming each advance is outstanding for about a month.
| Fee Type | Typical Range | What It Covers |
|---|---|---|
| Service charge | 0.5-3% | Administration, credit control, collections |
| Discount charge | Base rate + 1-3% | Interest on the advanced amount |
| Arrangement fee | £500-£2,000 | One-off setup cost |
| Bad debt protection | 0.3-1.5% | Non-recourse cover (optional) |
Read our full costs guide for worked examples and tips on negotiating lower fees.
Who Is Eligible for Invoice Finance?
You are likely eligible if your business:
- Invoices other businesses (B2B) on credit terms
- Has annual turnover of £50,000 or more (some providers accept less)
- Has creditworthy customers (blue-chip, government, or established businesses)
- Is registered in the UK
Bad credit, CCJs, and lack of trading history are usually not barriers. The provider is primarily assessing your customers' ability to pay, not yours.
Pros and Cons
Advantages
- Immediate cash flow from unpaid invoices
- Grows with your business - more invoices = more funding
- No property or personal assets required as security
- Bad credit usually accepted
- Factoring includes credit control and collections
- Non-recourse options protect against bad debt
Disadvantages
- Costs more than a standard overdraft if you qualify for one
- Factoring means customers know you use finance
- Some contracts have minimum terms (12 months)
- Not suitable for B2C businesses or cash sales
- Concentration limits may apply (max % from one customer)
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
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