How does invoice finance affect my balance sheet?
If you must repay the lender when a customer does not pay (recourse), your invoices stay on your balance sheet and the money from the lender appears as a new liability. Your cash and your liabilities both go up by the amount you draw, so your net assets stay the same. If the lender has bought the invoices and taken the risk, the invoices are swapped for cash and no liability appears.
A simple example
A company is owed £100,000 by its customers (trade debtors), has £10,000 in the bank and owes its suppliers £60,000. The lender advances 85% of the invoices (£85,000), which is within the up to 95% that Bibby publishes (read 1 Nov 2026). The figures are made up and fees are left out.
| Current assets and liabilities | Before | Recourse facility | Invoices sold outright |
|---|---|---|---|
| Trade debtors | £100,000 | £100,000 | £0 |
| Amount the lender still owes you (the part held back) | £0 | £0 | £15,000 |
| Cash | £10,000 | £95,000 | £95,000 |
| Total current assets | £110,000 | £195,000 | £110,000 |
| Owed to suppliers | £60,000 | £60,000 | £60,000 |
| Owed to the invoice finance lender | £0 | £85,000 | £0 |
| Total current liabilities | £60,000 | £145,000 | £60,000 |
| Net current assets | £50,000 | £50,000 | £50,000 |
| Current ratio (current assets divided by current liabilities) | 1.83 | 1.34 | 1.83 |
Net current assets stay at £50,000 in all three columns. What changes is the size of the balance sheet. With the recourse facility, the company now shows £85,000 of borrowing and its current ratio falls from 1.83 to 1.34. When the invoices are sold outright, the ratio stays at 1.83 and there is no borrowing.
Why the recourse column keeps the invoices
Under FRS 102, the main UK accounting standard, a company that keeps significant risk on the invoices must keep them on its balance sheet in full and show the lender's money as a liability. The two figures cannot be netted off against each other (FRS 102, paragraph 11.34). The "sold outright" column only applies if the lender takes substantially all the risk of late payment and non-payment. Your accountant decides which column you are in from your contract. The test is explained on our page about IFRS 9 and true sale, and the bookkeeping on invoice finance and accounting.
What you do with the cash matters too
In the example the cash sits in the bank. If the company uses it to pay its suppliers, both cash and the amount owed to suppliers fall, and the current ratio moves again. If you plan to use the money to pay suppliers, work out your year-end figures after those payments, not on the day you draw the money.
Common questions
Do the fees change the balance sheet?
Yes, a little. Fees are a cost, so they reduce your profit and therefore your net assets by the same amount. They were left out of the example to keep the numbers easy to follow.
Does my balance sheet look worse with invoice finance?
Your net assets do not change, apart from the fees. With recourse, the extra liability lowers your current ratio and raises measures of borrowing, which some banks and buyers look at. It depends on what each of them measures.
For what this means for bank loans and covenants, see does invoice finance count as debt. To compare the two main kinds of facility, see recourse vs non-recourse.
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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