Can I switch invoice finance provider?
Yes. First check your contract for the minimum term, the notice period and any exit fee. Get a written offer from the new lender before you give notice to the old one. The new lender can usually pay off the old one on the day the new facility starts, so you are not left without funding. Then make sure the old lender's charge is marked as satisfied at Companies House.
The steps
| Step | What to do |
|---|---|
| 1. Read your contract | Find the minimum term, the notice period, any exit fee and how notice must be given |
| 2. Get quotes | Ask a few lenders to price the facility on your own figures, and compare the total cost |
| 3. Get your papers ready | The new lender will check your business before it makes an offer |
| 4. Get a written offer, then give notice | Give notice to the old lender only once you have the new offer in writing |
| 5. Agree the handover day | The new lender pays off what you owe the old one on the day the new facility starts |
| 6. Tell customers where to pay | Send new payment details once the new facility is live |
| 7. Clear the old charge | Check Companies House shows the old lender's charge as satisfied |
1. Your contract: minimum term, notice and exit fee
Your contract decides when you can leave and what it costs. UK broker ABC Finance says clients are usually "locked in for a minimum of twelve months" and that "switching providers during the contract can trigger early termination fees". It also says winding up a facility "will take time and may incur legal costs".
Check how notice must be given (letter or email, and to which address) and when the notice period starts. Check too whether the contract renews by itself unless you give notice by a set date. If anything is unclear, ask the lender to confirm it in writing.
2. Comparing quotes
Don't compare on one headline rate. Ask each lender for a worked example on your own monthly sales and the time your customers take to pay. It should show the service charge, the discount charge, any minimum monthly fee and any other charges, such as fees for same-day payments or audits. Add the exit fee you will pay the old lender, then compare the total. The exit cost calculator and the switching checker can help.
3. What the new lender will ask for
- Your latest accounts, or management accounts if you are newer
- An aged debtor report showing who owes you what, and for how long
- Some sample invoices with the matching orders or contracts
- Recent bank statements
- Your current facility terms
The lender will also look at how much of your sales come from one customer. Many lenders limit how much they will lend against any one customer. Be open about customers who pay slowly or dispute invoices. The lender will find out anyway when it checks your ledger. Collecting old unpaid invoices before you apply helps.
4 and 5. Giving notice and the handover day
There are two ways to move. You can close the old facility first and start the new one after, which leaves a gap with no funding. Or the new lender can pay off the old one on the day the new facility starts, so there is no gap. Most businesses want the second way. It needs both lenders, and often their solicitors, to agree the date and the amount.
Ask the old lender for a settlement figure for your planned leaving date. It covers money advanced against invoices not yet paid, plus fees and interest up to that day, plus any exit fee. The interest part grows each day, so ask for figures on two or three possible dates. Never send the same invoice to both lenders. If your new lender needs the old one to agree who ranks first while both have a charge, that is done with a deed of priority.
6. Telling your customers
With factoring, your customers were told to pay the old lender through a notice of assignment. They now need new instructions, agreed with the old lender, so payments for invoices it funded still reach it. Keep the letter short: who to pay, the new bank details, and who to call with questions. With confidential invoice discounting, check whether customers pay into an account the old lender controls. If they do, change the bank details on your invoices.
7. Clearing the old charge
Paying off the old lender does not update Companies House by itself. Ask the old lender for a written release, and make sure a form MR04 (a statement that the charge has been satisfied) is filed. Then check your company's record on Companies House. More detail on this in how to leave an invoice finance facility.
Is it worth switching?
It can be if your costs have gone up, the service is poor, or your business has changed and the facility no longer fits. It is less likely to be worth it if you are still inside the minimum term, because the exit fee can wipe out the saving. Use the switch to ask for better terms, not just the same deal with a new name. A printable list of the steps is in the switching and exit checklist.
Common questions
How long does switching take?
It depends mostly on your notice period and how long the new lender takes to check your business. Your contract sets the notice period. The new lender's checks can run during your notice period, so start them early. Ask both lenders for their timings in writing.
What happens to the money I already owe the old lender?
It has to be paid off before the old lender releases its charge. Either your customers' payments clear it over time, or the new lender pays it off in one sum on the day the new facility starts. Ask the old lender for a settlement figure for your planned leaving date.
Can I switch if I'm unhappy with my current lender?
Yes, once you are free to leave under your contract. If you leave before the minimum term ends, you will usually pay an early termination fee. Weigh that fee against what you expect to save.
Will my customers notice?
With factoring, yes, because they will be told to pay a new lender. With confidential invoice discounting they may not, but you may need to change the bank details on your invoices. Write to customers only once the new facility is live.
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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