Does invoice finance count as debt?
Yes, if you have to repay the lender when a customer does not pay (this is called recourse). In that case the money the lender gives you is shown in your accounts as a loan secured on your invoices. It only counts as a sale of the invoices, and not as debt, if the lender takes on substantially all the risk that customers pay late or never pay.
Selling the debt or borrowing against it?
The share of the invoice the lender advances does not decide it. A lender could advance 98% of an invoice and it would still be borrowing if you have to pay it back when the customer does not pay. What decides it is who loses money if the customer pays late or not at all.
| Your facility | Who takes the loss if a customer does not pay | In your accounts |
|---|---|---|
| Recourse factoring or invoice discounting | You | Debt: a secured loan |
| Non-recourse, but you must buy back invoices that go well overdue | Mostly you | Debt: a secured loan |
| Non-recourse, with the lender taking substantially all the risk of late and non-payment | The lender | A sale: the invoices come off your balance sheet |
The middle row is based on an example in FRS 102, the main UK accounting standard. A company sells invoices to a bank but must buy back any that are more than 120 days overdue. Because it has kept the risk of slow payment and non-payment, it treats the bank's money as "a loan secured by the receivables" (FRS 102, section 11). The full test is on our page about IFRS 9 and true sale. Your accountant decides the treatment from the contract wording.
Debt in your loan agreements
Bank loans often include covenants (promises you make, such as keeping borrowing below a set multiple of your profit). Each agreement defines "borrowing" or "financial indebtedness" in its own words, so whether invoice finance counts depends on that wording, not on your accounts. Read those definitions, or ask the bank, before you sign an invoice finance facility. Also check whether your bank already holds a charge (security) over your debtors. Charges have to be registered at Companies House (Companies Act 2006, section 859A), so you can look this up on your company's record.
Common questions
Will other lenders see my invoice finance facility?
They can. The lender's security is registered at Companies House, and the amount you owe appears in your accounts as a secured liability. Our page on whether invoice finance affects your credit rating covers credit files.
Does confidential invoice discounting count as debt?
Yes. Confidential only means your customers are not told. In your accounts it is treated the same way as any other facility where you carry the risk of non-payment.
See also: how invoice finance affects your balance sheet, does invoice finance affect your credit rating and recourse vs non-recourse invoice finance.
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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