Invoice finance vs a revolving credit facility
Invoice finance lets you borrow against your unpaid invoices, so the amount you can draw goes up and down with your sales. A revolving credit facility (RCF) is a set borrowing limit you can draw, repay and draw again, a bit like an overdraft. It is not tied to your invoices. Invoice finance suits a business waiting to be paid by other businesses. An RCF suits a business that needs a flexible buffer for costs that don't come from invoicing.
The differences side by side
| Invoice finance | Revolving credit facility | |
|---|---|---|
| How much you can draw | A share of your unpaid invoices, so it grows as you invoice more | Up to a set limit |
| What the lender relies on | Your invoices and your customers | Your business as a whole |
| How you repay | Your customers' payments pay it off | You repay from your own cash |
| How it is priced | A service charge on each invoice plus interest on what you draw | Interest on what you draw, plus any fees the lender sets |
| Do customers know? | With factoring, yes. With invoice discounting, usually not | No |
What each one costs
Invoice finance. UK broker ABC Finance puts interest at usually 1.5% to 3.5% a year above the Bank of England base rate (currently 4%). Lenders do not publish their service charges; each one quotes per facility. See invoice finance costs.
Revolving credit. Prices vary by lender. As one published example, iwoca, whose flexible credit line has rates that start at 1.5% per 30 days on the money you draw. That is a monthly rate, so it is not directly comparable with a yearly rate. Ask any lender for the total cost in pounds on the amount and time you expect to borrow.
The fairest comparison is the cost of the same amount for the same length of time. Our calculator works out the invoice finance side.
Who invoice finance suits
- You sell to other businesses on 30 to 90 day terms and wait to be paid.
- Your sales are growing, so you need more money as you invoice more.
- You have several customers rather than one or two.
Who a revolving credit facility suits
- Your cash needs don't come from invoicing, for example stock, a tax bill or a quiet season.
- You have few invoices, or you sell mainly to consumers.
- You want customers never to deal with a lender.
Before you sign either
- Ask for every fee in writing, including fees for leaving early or for money you don't use.
- Ask whether a director has to give a personal guarantee.
- Check your existing borrowing. A current lender may need to agree before you give security to another one.
For other comparisons, see how invoice finance works and factoring vs invoice discounting.
Common questions
Which invoice finance option is more like selling invoices, and which is more like a revolving credit line?
Factoring is closer to selling your invoices: the lender takes over collecting them. Invoice discounting works more like a revolving credit line secured on your invoices: you keep collecting, you draw money against what you are owed, and it is paid off as customers pay.
Can I use either one to pay a corporation tax bill?
Yes, as long as you have money available. With invoice finance you can only draw against invoices you have already raised, so the amount depends on your recent sales. With a revolving credit facility you can draw up to your limit for any business purpose. Ask your accountant whether a tax payment plan from HMRC would cost less than borrowing.
Can I have both at once?
Often, yes. Both lenders will want security, so they will need to agree who has first claim on which assets. Tell each lender about the other before you sign.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam was managing director of Penny, a UK invoice finance business, from July 2020 to November 2023. His career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library. Career record.
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