How to Switch Invoice Finance Providers

Switching invoice finance providers is not difficult, but the timing and sequence matter. Miss your notice window by a day and you could be locked in for another 12 months. Fail to coordinate the debenture transfer and you could have a gap in funding. Here is exactly how to switch without getting stung - and the contract clauses that catch people out every year.

When to Consider Switching

The right time to evaluate your provider is at every annual review - not just when something goes wrong. Common triggers for switching include:

• You are paying too much. Rates change. A facility priced 18 months ago may be significantly above current market rates, especially if your business has grown or your credit profile has improved.
• Service has deteriorated. Slow payments, unresponsive account managers, or rigid debtor approval processes that delay funding. If you are regularly waiting more than 24 hours for advances, the provider is underperforming.
• You have outgrown the provider. Your turnover has increased and you now qualify for cheaper bank-owned facilities, or you need a higher facility limit than your current provider can offer.
• Terms have been tightened. Some providers reduce advance rates, add debtor restrictions, or increase charges at renewal. If your terms are worse than when you signed, it is time to look elsewhere.
• Better technology is available. If you are still uploading PDF invoices when competitors offer direct Xero or Sage integration, switching can save hours of admin every week.

Step 1: Review Your Current Contract

Before doing anything else, dig out your facility agreement and check these specific clauses:

• Contract end date - most facilities run for 12 months from the anniversary of signing
• Notice period - typically 3 months before the contract end date. Miss this and the contract auto-renews
• Auto-renewal clause - does the contract automatically renew for another 12 months or roll onto monthly terms?
• Early termination fee - what you pay if you leave before the contract ends. "3 months minimum charges" is reasonable. "Full remaining contract value" is punitive
• Debenture release terms - how long the provider has to release their debenture after you pay off the facility. Some contracts specify 14 days, others are vague

Step 2: Get Quotes from New Providers

Start shopping around at least 4 months before your contract end date. This gives you time to get quotes, negotiate, and have a new facility approved before you serve notice on the old one. Get quotes from at least 3 providers using our provider selection guide.

When negotiating with new providers, tell them you are switching from an existing facility. Experienced providers handle transfers regularly and will often coordinate the debenture release process on your behalf. Ask whether they will cover any exit fees from your old provider - some will, particularly for larger facilities.

Step 3: Serve Notice on Your Current Provider

Once you have a new facility agreed in principle, serve formal notice on your current provider. Do this in writing (email is fine but follow up with a recorded delivery letter for evidence). Your notice must:

• State clearly that you are terminating the facility
• Reference the contract clause for termination
• Confirm the date you expect the facility to end
• Request confirmation of the debenture release process and timeline
• Ask for a final settlement figure including any outstanding charges

Step 4: The Debenture Release

This is the critical step that causes the most problems. Your old provider has a debenture (a charge over your book debts) registered at Companies House. The new provider needs to register their own debenture in its place. There are two ways this happens:

• Sequential release - the old provider releases the debenture first, then the new provider registers theirs. This creates a brief gap with no charge in place and is the simpler method.
• Deed of priority - the old and new providers agree that the new provider's debenture takes priority over the old one. This avoids any gap but requires cooperation between the two providers' legal teams.

Some providers deliberately delay the debenture release to keep you locked in longer. If your old provider is dragging their feet, have your new provider's legal team apply pressure. In extreme cases, a solicitor's letter requesting the release within 14 days usually resolves it.

Step 5: The Overlap Period

There is always an overlap period of 4-8 weeks where both facilities are technically active. During this time:

• New invoices go to the new provider from the switch date
• Existing funded invoices remain with the old provider until your customers pay them
• Customer notifications - if you are on a disclosed facility, your customers receive a new Notice of Assignment redirecting payments to the new provider
• Cash flow - plan for a brief dip in available funding during the transition as the old facility winds down and the new one ramps up

Exit Fees: What Is Reasonable?

What to Negotiate with the New Provider

Switching gives you negotiating leverage. The new provider wants your business and knows you are an experienced invoice finance user. Use this to negotiate:

1. 1.Exit fee contribution. Ask the new provider to cover or contribute to the exit fees from your old provider. Many will do this for facilities above £250k annual funding.
2. 2.Reduced arrangement fee. You are not a new-to-invoice-finance customer. The setup is simpler because you understand the product. Push for a reduced or waived arrangement fee.
3. 3.Break clause. Negotiate a 6-month break clause. If the new provider's service is not what was promised, you can leave without penalty.
4. 4.Rate lock. Ask for the service charge and discount charge to be fixed for the full contract term, not subject to review.
5. 5.Debenture transfer coordination. Ask the new provider to handle the debenture transfer process with your old provider. Good providers will manage this end to end.

Red Flags in Your Current Contract

"The single most important date in your invoice finance relationship is the notice deadline. Put it in your calendar now - with a reminder 4 months before. Every year we see businesses locked into another 12 months because they missed it by a week." , Invoice finance broker, 15 years' experience