What is invoice finance and how does it work?
Invoice finance lets a UK business get money from unpaid invoices before its customers pay. A lender pays you most of each invoice now, usually 80% to 95% (UK broker ABC Finance). When your customer pays, the lender sends you the rest, minus its fees. It is for businesses that sell to other businesses on credit.
How invoice financing works, step by step
- You send an invoice. You do the work or deliver the goods and invoice your customer as normal. You send a copy to the lender, usually through its website or your accounting software.
- The lender pays you most of it. This is called the advance. Once a facility is set up, lenders such as Ultimate Finance and Bibby say they pay within 24 hours. Each lender sets its own advance rate (see the table further down).
- Your customer pays. They pay on their normal terms, for example 30 or 60 days. The money goes to the lender, or to a bank account the lender controls.
- You get the rest. The lender sends you the remaining share of the invoice, minus its fees.
An example with numbers
These are made-up figures, and a real quote will differ. The 85% advance and 1% service charge are example figures inside the ranges ABC Finance gives (see the costs table below). The discount charge is 6.5% a year: the Bank of England base rate of 3.75% plus a 2.75% margin, the margin ABC Finance uses in its own cost example.
| Invoice to your customer, 30-day terms | £20,000 |
| Advance at 85%, paid to you now | £17,000 |
| Discount charge: 6.5% a year on £17,000 for 30 days | £91 |
| Service charge: 1% of the invoice | £200 |
| Paid to you when the customer pays (£3,000 less £291) | £2,709 |
| You receive in total (£17,000 + £2,709) | £19,709 |
If the customer pays late, the discount charge keeps running until they pay.
The main types
| Type | Who collects payment | Do customers know? | Covers |
|---|---|---|---|
| Invoice factoring | The lender | Yes | All your invoices |
| Invoice discounting | You | Usually not | All your invoices |
| Selective (single invoice) | Depends on the lender | Depends on the lender | Invoices you choose |
The full comparison is in factoring vs invoice discounting. You may also see the words "bill finance" or "bill discounting". In everyday use people often mean invoice finance. Strictly, bill discounting is a trade finance product based on bills of exchange.
What it costs
Most lenders don't publish prices. These are the ranges given by UK broker ABC Finance, checked 14 October 2026:
| Charge | Usual range | What it is for |
|---|---|---|
| Service charge | 0.5% to 3% of invoice value | Running the facility, and chasing payment if it is factoring |
| Discount charge | 1.5% to 3.5% a year above base rate (up to 4% to 6% for riskier firms) | Interest on the money advanced |
| Set-up fee | £250 to £5,000 | Setting up the facility |
| Bad debt protection | 0.3% to 1.0% of invoice value | Optional cover if a customer never pays |
The Bank of England base rate is 3.75% (last changed 18 December 2025). Our costs guide has more examples, and the calculator gives an estimate for your own figures.
Who can get it
You are more likely to be accepted if:
- you sell to other businesses, not to the public
- you give customers credit terms, so invoices are paid later
- your customers have a good record of paying
- your turnover meets the lender's minimum, if it has one
Minimums vary a lot from lender to lender:
| Lender | Published minimum turnover | Paid up front | Source |
|---|---|---|---|
| Bibby Financial Services | None published | Up to 85% | bibbyfinancialservices.com |
| Ultimate Finance | None published | Up to 95% | ultimatefinance.co.uk |
| Lloyds Bank Commercial Finance | £100k | Up to 90% | lloydsbank.com |
| Skipton Business Finance | None published (confidential discounting) | Up to 90% | skiptonbusinessfinance.co.uk |
| Close Brothers Invoice Finance | £750k (discounting) | Up to 90% | closeinvoice.co.uk |
| HSBC Invoice Finance | £1m (discounting) | Up to 95% | business.hsbc.uk |
Figures as published on each lender's own website, checked 14 October 2026. None of these lenders publishes its fees.
The drawbacks
- It can cost more than an overdraft. If you can get one, compare the total cost of both.
- The longer customers take to pay, the more you pay.
- With factoring, your customers know you use finance.
- Contracts often have a minimum term and a notice period, and fees if you leave early. Read these before you sign.
- On a recourse facility, you carry the loss if a customer never pays.
- Lenders may limit how much you can draw against any one customer.
How big is it in the UK?
UK Finance says its members provide "well over £20 billion to tens of thousands of UK client businesses" at any one time through invoice finance and asset-based lending.
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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