Invoice finance UK businesses rely on solves one of the most common cash flow problems facing SMEs: money tied up in unpaid invoices while wages, suppliers and tax bills still need paying. If you have delivered the work but your customers take 30, 60 or even 90 days to settle, that gap can stall growth and put real pressure on day-to-day operations.
Invoice finance bridges that gap by releasing cash against the value of your outstanding invoices, often within 24 to 48 hours. Rather than waiting for customers to pay, you receive most of the invoice value upfront and use it to keep trading, take on new orders or smooth seasonal dips. This 2026 guide explains how invoice finance works, the different types available, what it costs and how to decide if it suits your business.
What is invoice finance and how does it work?
Invoice finance is a form of asset-based lending where a lender advances funds against your unpaid sales invoices. When you raise an invoice to a creditworthy business customer, the lender typically advances 70 to 90 per cent of its value straight away. Once your customer pays, you receive the remaining balance minus the lender’s fees.
Because the funding is secured against your debtor book rather than property or other fixed assets, the facility grows in line with your sales. The more you invoice, the more funding becomes available. This makes invoice finance particularly well suited to growing businesses, those with long payment terms, and sectors such as recruitment, manufacturing, wholesale and professional services where invoices are a core part of the trading cycle.
Types of invoice finance available in the UK
There are two main types of invoice finance, and the right choice depends on how much control you want over credit collection and whether you want your customers to know a lender is involved.
- Invoice factoring – the lender manages your sales ledger and chases payment from your customers directly. This saves you time on credit control but means customers know you are using a facility.
- Invoice discounting – you retain control of collections and the arrangement stays confidential, so customers continue paying you as normal. This suits established businesses with strong internal credit processes.
- Selective invoice finance – you choose individual invoices to fund rather than the whole ledger, giving flexibility when you only need occasional support.
How much does invoice finance cost?
Invoice finance costs are usually made up of two charges. The first is a service fee, typically 0.25 to 3 per cent of turnover, covering the administration and credit control of the facility. The second is a discount charge, similar to interest, applied to the funds you draw down and usually set at 1.5 to 3 per cent above base rate.
| Feature | Invoice factoring | Invoice discounting |
|---|---|---|
| Credit control | Managed by lender | Managed by you |
| Confidentiality | Customers aware | Confidential |
| Best for | Smaller or growing SMEs | Established businesses |
| Typical advance | Up to 90% | Up to 90% |
The exact rate you pay depends on your turnover, the creditworthiness of your customers, your industry and the type of facility. Because pricing varies widely between providers, comparing the whole market is the best way to secure competitive terms.
Is invoice finance right for your business?
Invoice finance works best for businesses that trade with other businesses on credit terms and have a steady flow of invoices. To qualify, lenders generally look for a turnover above roughly 50,000 pounds a year, invoices raised to creditworthy commercial customers, and clean, well-documented sales records. Businesses that sell directly to consumers or work largely on cash terms are usually a poorer fit.
If your funding need is for equipment, premises or a one-off project rather than ongoing cash flow, other options such as business loans may be more appropriate. The right structure often depends on the bigger picture, which is where speaking to a broker can save time and money.
How to get started with invoice finance
Getting set up is straightforward. A lender will review your debtor book, customer payment history and recent accounts before offering terms. Most facilities can be arranged within one to two weeks, with funds released against invoices shortly afterwards. Because invoice finance is flexible and scales with your sales, many SMEs use it as a long-term cash flow tool rather than a short-term fix.
At Growth Business Finance we compare facilities across a wide panel of UK lenders to match you with the right type of invoice finance at competitive rates. Get in touch with Growth Business Finance for a free, no-obligation consultation. Call us on 020 3432 2341 or apply online at growthbusinessfinance.com today.