Waiting 60 days to get paid? How invoice finance works

Factoring, discounting and single-invoice finance compared, with what they cost and when they make sense.

Late payment is one of the most common reasons good businesses run short of cash. You’ve done the work and sent the invoice, but the money won’t arrive for 30, 60 or even 90 days. Meanwhile, wages, suppliers and VAT still need paying.

Invoice finance turns those unpaid invoices into cash now.

How it works

You raise an invoice to your business customer as normal.
The finance provider advances you a large share of the invoice value, often around 80 to 90%, usually within a day or two.
Your customer pays the invoice.
The provider passes you the remaining balance, minus its fees.

Because the funding is linked to your sales ledger, it grows as your sales grow. That makes it popular with businesses that are expanding quickly.

The main types

Invoice factoring. The provider runs your credit control and collects payment from your customers. Your customers will know you use a factor. This suits smaller businesses without a dedicated finance team.

Invoice discounting. You keep control of collections, and the arrangement can often be confidential, so your customers deal with you as normal. Providers usually expect a larger turnover and good credit control processes.

Selective (single) invoice finance. You choose individual invoices to fund as and when you need to, rather than funding your whole sales ledger. It’s more flexible but usually costs more per invoice.

What it costs

Expect two main charges:

a discount charge, which works like interest on the money advanced
a service fee, often a percentage of turnover or a fixed monthly fee

Some agreements also have minimum terms, notice periods and extra charges for things like credit protection. Always ask for the total cost in pounds on a typical month, not just the headline percentages.

When it makes sense

Invoice finance works best if you:

sell to other businesses (B2B), not to consumers
have customers with a reliable payment record
are growing and need working capital to keep up

It’s less suitable if most of your sales are cash or card payments, or if your invoices are often disputed.

Can it be government-backed?

Yes. Invoice finance can be provided under the Growth Guarantee Scheme by accredited lenders, which may help newer businesses get a facility.

If you’re unsure whether your sales ledger qualifies, tell us about your customers and payment terms, and we’ll find providers that fit.

This article is general information, not advice for your situation. Scheme rules and lender criteria change, so always check the current terms before you apply.