What Types of Invoices Can Be Factored?

Invoices must be for completed work or delivered goods to creditworthy B2B customers on credit terms. Cannot factor: pro-forma invoices, deposits, invoices to consumers (B2C), retentions (usually), disputed invoices, intercompany invoices, or invoices for future work not yet completed.

Why This Matters

Invoice factoring providers advance cash against unpaid invoices, typically releasing 70-90% of the face value within 24 hours. But they only buy genuine trade debt from solvent UK companies with documented delivery. Understanding what qualifies prevents wasted applications and embarrassing declines. A London IT contractor who invoices a Fortune 500 client for three months' consultancy delivered in January will sail through underwriting. A Birmingham builder invoicing a homeowner for an extension, or a Sheffield manufacturer invoicing its own Irish subsidiary, will be rejected immediately. The distinction is critical because most UK SMEs hold a mix of invoice types on their sales ledger, and only the 'clean' B2B trade receivables unlock working capital. Misunderstanding eligibility costs time, damages lender relationships, and can leave businesses short of cash when they need it most. Providers like Close Brothers, Bibby Financial Services, and Aldermore have clear criteria because their risk models depend on the debtor's creditworthiness and the invoice representing completed, arms-length commercial supply.

Key Points

Invoices must evidence completed delivery of goods or services before the advance is made. Work-in-progress, stage payments for uncompleted projects, or pro-forma invoices requesting deposits do not qualify.
The debtor must be a UK limited company, public body, or substantial overseas corporation with verifiable credit history. Sole traders, partnerships without company structure, and consumers (B2C invoices) are excluded from most facilities.
Credit terms typically must be between 7 and 120 days. Same-day payment invoices and those beyond four months are generally ineligible because they fall outside standard working capital cycles.
Disputed invoices, those subject to retentions (common in construction), or invoices with extensive contra arrangements cannot be factored until disputes resolve and retentions release.
Intercompany invoices between connected entities (parent-subsidiary, sister companies under common ownership) are rejected because the debtor and client are effectively the same economic unit, eliminating independent credit risk.
Invoices to high-street consumers, even for substantial amounts, are ineligible. A £15,000 invoice to a homeowner for a conservatory cannot be factored, but the same value invoiced to a property developer for identical work on a commercial site can.
Some sectors face additional scrutiny: recruitment agencies invoicing umbrella companies, hauliers with high fuel rebate elements, or businesses with significant service warranties may find certain invoice types excluded from advances.

Real-World Example

A Leeds-based design agency with £800,000 turnover completes a website project for a national retailer, invoicing £22,000 on 30-day terms. They also invoice a local startup founder £3,500 for brand work (sole trader client) and raise a £12,000 pro-forma to a manufacturer for an upcoming campaign starting next month.

The £22,000 corporate invoice qualifies immediately. Ultimate Finance or Novuna Business Finance would advance £18,700 (85%) within 48 hours once delivery evidence (signed-off project, email acceptance) is verified. The £3,500 sole trader invoice is rejected outright. The £12,000 pro-forma is ineligible until the work completes and converts to a final tax invoice showing delivery.

Common Pitfalls

Factoring stage payment invoices in construction before practical completion. Retention clauses (typically 5-10% held for 12 months post-completion) mean you cannot access the full invoice value, and many funders exclude retention invoices entirely until final release.
Assuming high-value B2C invoices qualify because the amount is substantial. A £50,000 invoice to a wealthy individual for bespoke joinery is still consumer credit, outside the scope of commercial invoice finance, regardless of size.
Submitting invoices to connected parties. A holding company invoicing its trading subsidiary for management charges will be declined, even if both entities have separate bank accounts and the arrangement appears commercial.
Factoring disputed invoices or those with quality complaints outstanding. Providers perform debtor verification calls. If the debtor flags any issue with goods, services, or pricing, the advance will be blocked until resolution.

What to Do Next

Audit your sales ledger by debtor type. Separate corporate B2B invoices on defined credit terms from consumer sales, intercompany charges, and pro-forma requests. Only the first category will unlock funding.
Check your standard terms and conditions confirm delivery precedes invoicing. If your contract allows invoicing before dispatch or go-live, you may need to adjust invoicing procedures to evidence completion for factoring purposes.
Request a ledger review from providers like Close Brothers or Skipton Business Finance. They will analyse a sample of your invoices, identify eligible receivables, and estimate concentration risk if one or two debtors dominate your sales.
If you issue retentions or stage payments, explore selective invoice finance or spot factoring on final invoices only, rather than whole-turnover facilities that require every qualifying invoice to be factored.