Can I Switch Invoice Finance Provider?

Why This Matters

Switching invoice finance providers is increasingly common as UK SMEs seek better rates, improved service, or faster funding. Unlike switching a current account, moving invoice finance is operationally complex because your existing lender holds a legal charge (debenture) over your receivables registered at Companies House. The current provider must release this charge before the new one can register theirs, creating a legal and cashflow gap. Getting this wrong can freeze your working capital for weeks. However, providers now compete hard for quality portfolios, so businesses with clean ledgers, strong debtor books, and £500k+ turnover often secure 0.3-0.5% lower discount fees or removal of minimum monthly charges by switching. The switch typically takes 6-12 weeks from initial approach to first advance with the new provider. Understanding notice periods, intercreditor coordination, and interim funding is critical. Most contracts require 30-90 days' written notice, and some include exit fees ranging from one month's fees to 3% of outstanding advances. Businesses that plan switches during quieter trading periods and maintain 4-6 weeks' operating cash as a buffer typically transition smoothly. Those that don't risk payroll shortfalls or supplier payment failures during the handover window.

Key Points

• Standard invoice finance contracts require 30-90 days' written notice to terminate, with 90 days most common for facilities above £500k. Check your agreement for minimum term commitments (often 12-24 months) and early exit penalties.
• The new provider cannot advance funds until the old provider's debenture is released and the new charge is registered at Companies House, a process taking 5-15 working days after all paperwork is signed.
• Exit fees vary widely: some providers (Close Brothers, Bibby Financial Services) charge one month's service fees; others levy 2-3% of the outstanding advance balance or include tail provisions requiring you to pay fees on invoices raised before exit but paid after.
• You need bridging cash to cover 2-4 weeks between the old facility stopping and the new one starting. Businesses with £30k+ monthly payroll typically need £50-80k liquid reserves or a temporary overdraft.
• The new provider conducts full due diligence (typically 3-4 weeks) including ledger audit, debtor creditworthiness checks, and directors' personal credit searches, even if you've been with another funder for years.
• Debtor notification is unavoidable when switching: your customers will receive new payment instruction letters, and some may question your financial stability. Plan communication carefully, especially with key accounts representing over 20% of turnover.
• Switching works best when you have leverage: clean aged debt reports (under 5% over 90 days), diverse debtor base (no single customer over 25%), and strong forward order book. Providers like Sonovate and Triver actively poach well-performing portfolios with rate reductions of 0.4-0.8%.

Real-World Example

Common Pitfalls

• Underestimating the cash gap: businesses often assume the new facility starts immediately after notice expires. The debenture release and re-registration adds 1-3 weeks with zero access to invoice funding, leaving many scrambling for emergency overdrafts or delaying supplier payments.
• Ignoring tail provisions: some contracts (particularly older ones from Lloyds Bank Invoice Finance and HSBC Invoice Finance) include clauses requiring you to pay fees on invoices raised before termination but collected after. On a £200k monthly sales ledger, this can mean £4-8k in unexpected fees.
• Switching during peak season: moving provider in your busiest trading period (e.g. Q4 for retail suppliers) amplifies risk. Debtor queries about new payment details can delay collections by 7-14 days, compounding cashflow pressure when you need it least.
• Failing to clean up the ledger first: new providers reject applications with over 10% debt aged beyond 90 days. Businesses rush to switch without collecting old invoices, then face decline or heavily reduced advance rates with the new funder.
• Not checking the new provider's debtor concentration limits: if your top three customers represent 60% of turnover, providers like Bibby Financial Services or Close Brothers may only advance 70-75% on those invoices, reducing your effective funding versus your current arrangement.

What to Do Next

• Request a redemption statement from your current provider showing exact outstanding balance, accrued fees, notice period required, and any exit penalties. Compare this against potential savings with new providers over 12-24 months to calculate genuine ROI.
• Approach 3-4 alternative providers (include both high-street names like Barclays Invoice Finance and specialists like Time Finance or Pulse Cashflow) with your last 6 months' sales ledger, debtor aged analysis, and current facility terms for competitive quotes.
• Build a transition cashflow model showing the gap period: map out exactly when the old facility stops, when debenture transfer completes, and when the new provider makes first advances. Arrange bridging finance (director's loan, temporary overdraft, or short-term business loan) to cover 4-6 weeks' operating costs including payroll and HMRC liabilities.
• Prepare debtor communication: draft letters explaining the switch professionally (emphasise operational improvement, not financial distress) and coordinate with your account manager at the new provider to ensure payment instruction letters are clear and include a named contact for queries.

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