What Is Invoice Purchase and How Does It Differ From Factoring?

Why This Matters

Invoice purchase (also called selective invoice finance or spot factoring) lets UK businesses sell individual invoices for immediate cash without signing up to a monthly facility. Unlike traditional invoice factoring or discounting, you don't pledge your entire sales ledger or commit to minimum volumes. You upload an invoice, receive competitive bids from funders, and typically get 80-95% of the face value within 24-48 hours. The funder collects payment directly from your customer when due, then releases the reserve minus their fee. This matters because it gives businesses financing flexibility: you can fund a single large contract, bridge a seasonal cash gap, or test invoice finance without a long-term commitment. It's particularly useful for growing companies with lumpy revenue, project-based businesses, or firms wanting to preserve traditional overdraft facilities for other purposes. Because each invoice is assessed individually, businesses with strong blue-chip customers can often access better rates than they'd get on a whole-ledger facility where weaker invoices drag down pricing. However, per-transaction fees are typically higher than annualised rates on traditional facilities, so volume users often find selective purchase more expensive over time.

Key Points

• You sell invoices one at a time with no obligation to use the service again, no monthly minimums, and no long-term contract or debenture over your book debts.
• Advances typically range from 80-95% of invoice value within 24-48 hours, with funds released to your bank account once the platform verifies the invoice is genuine.
• The funder collects payment directly from your customer when the invoice falls due (usually 30-90 days), then pays you the remaining reserve minus their discount fee (typically 1.5-4.5% of invoice value depending on debtor quality and payment terms).
• Each invoice is priced individually based on your customer's creditworthiness, payment history, and invoice terms, meaning a £50,000 invoice to Tesco will cost less to fund than one to a new startup, even from the same supplier.
• Platforms like Kriya operate online marketplaces where multiple funders bid on your invoices, creating price competition that can reduce costs compared to single-lender quotes.
• No credit checks on your business for marketplace platforms (funders assess your customer's credit instead), making it accessible to startups, turnaround situations, or directors with historic CCJs, provided invoices are issued to creditworthy businesses.
• Your customer sees the funder's name on payment requests and knows you've sold the invoice, which differs from confidential invoice discounting but mirrors the disclosure in traditional factoring.

Real-World Example

Common Pitfalls

• Assuming per-invoice fees compare directly to annual percentage rates on traditional facilities. A 3% invoice purchase fee on 60-day terms equates to roughly 18% APR, often higher than whole-ledger discounting for businesses with regular invoice flow.
• Uploading invoices to multiple platforms simultaneously. Most require exclusivity on each invoice submitted, and duplicate submissions can result in account suspension or legal issues if two funders attempt collection from the same debtor.
• Selling invoices from customers who don't pay reliably. Unlike factoring with bad debt protection, invoice purchase is usually non-recourse only if the customer becomes insolvent, not if they dispute the work or withhold payment for quality issues. You remain liable for invalid invoices.
• Ignoring the customer experience impact. Your debtor receives collection notices from the funder, not you, and some corporate procurement teams view invoice selling negatively or require contractual approval before assignment, potentially damaging client relationships.
• Forgetting to factor the reserve release timing into cashflow planning. You only receive 80-95% upfront; the remaining 5-20% stays locked until your customer pays, which can be 90+ days away if they pay late.

What to Do Next

• Check your customer contracts for anti-assignment clauses that prohibit selling invoices without written consent. Public sector and large corporate contracts often include these, making invoice purchase legally unviable without prior approval.
• Calculate your true cost: if you need £50,000 for 45 days and a platform charges 2.5% on a £52,632 invoice, that's £1,316 for 45 days, equivalent to 21.4% annualised. Compare this to your overdraft rate (typically 6-12%) or a whole-ledger facility (1.5-3% per month plus service fees).
• Register with at least two platforms (such as Kriya and a traditional selective finance provider like Bibby or Aldermore's spot factoring services) to compare pricing on your first invoice. Rates vary significantly based on debtor, sector, and competitive appetite at the time you submit.

Related Questions