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 85 verified 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. The UK invoice finance market was worth £22.7 billion in 2025, used by over 40,000 businesses across construction, recruitment, manufacturing, and transport.
Last updated: 5 May 2026.
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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.
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Summary
Invoice finance is the UK's largest working capital product at £22.7 billion (2025). A provider advances most of your invoice value immediately, then collects from your customer on normal terms. Available from £50,000 turnover. Two types: factoring (provider manages collections) and discounting (you retain control, customers don't know).
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.
According to UK Finance, the UK invoice finance industry advanced £22.7 billion in 2025 across more than 40,000 businesses, making it the largest form of asset-based lending in the country. Research by the Federation of Small Businesses found that 50,000 UK businesses fail each year primarily due to cash flow problems - a key driver of demand for invoice-based funding.
"We've seen a clear structural shift over the past five years. As overdraft availability has declined by 40%, more SMEs are turning to invoice finance as their primary working capital facility. It's no longer a last resort - it's a first choice." , UK Finance spokesperson, Asset Based Lending Division
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
| 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+ |
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 a £100,000 invoice with an 85% advance rate, typical monthly costs range from £850 to £4,250.
| 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)
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: 4 April 2026