Can I Have Invoice Finance AND a Bank Overdraft?
Yes, but it depends on your bank. Some banks require you to choose one or the other because both are secured against business assets. Others are comfortable with both. The debenture from the invoice finance provider may conflict with the bank's security requirements. Discuss with both parties before committing.
Why This Matters
Many UK SMEs assume they must choose between invoice finance and an overdraft, but the reality is more nuanced. The critical issue is security: both facilities typically require a debenture (a legal charge over company assets), and banks hate sharing this position. If your invoice finance provider registers a first charge with Companies House, your bank's overdraft security becomes subordinated, which many high street banks won't accept. However, some relationship banks, particularly if they're also your invoice finance provider (like Lloyds Bank Invoice Finance or HSBC Invoice Finance), actively encourage combining both. The practical benefit is flexibility: invoice finance scales with turnover and releases cash tied in receivables, while an overdraft covers short-term timing gaps, VAT bills, or seasonal dips. For a growing business, running both can provide a comprehensive working capital solution, but only if the legal security positions are properly structured from the outset.
Key Points
- The main obstacle is conflicting security, not prohibition. Invoice finance providers register a debenture over book debts (your invoices), which can clash with the bank's charge over the same assets.
- Banks offering both products (Lloyds, HSBC, Barclays, NatWest, Santander) are more likely to permit dual facilities because they control both security positions and the intercreditor agreement internally.
- Independent invoice finance providers (Close Brothers, Bibby Financial Services, Ultimate Finance, Aldermore) may be willing to share security with your bank through a formal subordination or intercreditor deed, but this requires negotiation.
- Some banks demand you close existing invoice finance before approving an overdraft, particularly high street banks with rigid credit policies who view invoice finance as higher-risk lending.
- The combined credit line isn't simply additive. If you have £100k invoice finance and request a £30k overdraft, the bank will assess total exposure and may reduce the overdraft offer or tighten covenants.
- Transparency is essential. Failing to disclose existing invoice finance when applying for an overdraft (or vice versa) breaches representations and warranties, allowing lenders to demand immediate repayment.
- Practical combination works best when invoice finance handles predictable receivables (releasing 85-90% of invoice value within 24 hours) while the overdraft covers unpredictable gaps like late customer payments, tax bills, or payroll timing mismatches.
Real-World Example
A Leeds-based IT consultancy with £800k turnover has selective invoice finance with Bibby Financial Services (£60k facility against invoices from three large corporate clients on 45-day terms) and wants a £20k overdraft with their existing Barclays business current account for VAT quarters and equipment purchases.
Barclays reviewed the Bibby debenture registered at Companies House and proposed a £15k overdraft with a second-ranking charge, requiring Bibby's written consent via an intercreditor deed. Bibby agreed because their exposure was limited to specific ring-fenced invoices. The consultancy now draws on invoice finance for major project cashflow (releasing funds same-day) and uses the overdraft for quarterly VAT payments and ad-hoc supplier deposits, maintaining both facilities without conflict.
Common Pitfalls
- Assuming your bank will automatically agree because you're a good customer. Even long-standing relationships don't override credit policy on security conflicts. Always ask before applying for the second facility.
- Not reading the small print in your invoice finance agreement. Many contain 'negative pledge' clauses prohibiting additional secured borrowing without written consent, making your overdraft application invalid from day one.
- Treating the overdraft as permanent funding rather than short-term. Banks expect regular 'swing to clear' (account going into credit periodically). Continuously maxed overdrafts alongside invoice finance signal cashflow distress and trigger reviews.
- Failing to coordinate drawdowns. Drawing heavily on both facilities simultaneously (e.g. 90% of invoice finance availability plus full overdraft) can breach loan-to-value covenants or trigger cross-default clauses, especially if total debt exceeds agreed multiples of EBITDA.
What to Do Next
- Check your existing facility agreement for negative pledge, prior consent, or notification clauses regarding additional borrowing. If you have invoice finance, contact your provider before approaching the bank. If you have an overdraft, review the facility letter for restrictions on secured lending.
- Speak to your relationship manager at both institutions simultaneously. Explain the commercial rationale (e.g. invoice finance for growth, overdraft for tax timing) and ask whether they've handled similar dual arrangements. Request a draft intercreditor deed or subordination letter to understand security requirements.
- If your current bank refuses, consider switching the overdraft to the invoice finance provider's banking arm (if they offer one) or consolidating both facilities with a single provider like Lloyds Bank Invoice Finance, HSBC Invoice Finance, or Barclays Invoice Finance, who routinely structure combined packages for SMEs with £500k+ turnover.
Related Questions
Will having invoice finance affect my credit score or ability to get other finance?
Invoice finance itself doesn't appear on personal credit files, but the debenture is publicly registered at Companies House, visible to all lenders. Banks view it as existing secured debt, which affects your debt-to-equity ratio and borrowing capacity. It won't harm applications for unsecured products (credit cards, trade credit) but will influence secured lending decisions like overdrafts, term loans, or asset finance.
Can I switch from overdraft to invoice finance without closing my business account?
Yes, you can keep your current account and simply stop using the overdraft facility (or reduce it to a nominal amount like £5k-£10k). The bank may require you to formally surrender the debenture securing the overdraft before the invoice finance provider registers theirs. Some businesses maintain a small uncommitted overdraft for genuine emergencies while using invoice finance as the primary working capital tool, avoiding annual overdraft renewal fees on larger facilities.
Do invoice finance providers care if I have other debts like director's loans or CBILS/bounce back loans?
Yes, because it affects security priority and cashflow. CBILS and bounce back loans often have subordinated security (ranking behind invoice finance), which providers accept. However, large director's loan accounts or shareholder debts repayable on demand can signal weak equity and increase risk. Most invoice finance providers will underwrite total indebtedness as part of their credit assessment, typically requiring debt service coverage ratios above 1.2x and limiting total secured debt to 3-4x EBITDA.
Director, Market Invoice
Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.
Last reviewed: 6 April 2026