Invoice Finance: Unlocking Cash Flow for Growth
For growth-stage businesses, cash flow is often the biggest barrier to scaling. You’ve made the sale, delivered the service, but now you’re waiting 30, 60, even 90 days to get paid. That’s where invoice finance comes in. It’s a flexible, responsive way to unlock working capital tied up in unpaid invoices, helping you move faster and grow stronger.
What Is Invoice Finance?
Invoice finance allows you to access funds against your unpaid invoices, typically between 70–90% of the invoice value on day one. Instead of waiting for payment, you can use that cash immediately to pay suppliers, staff, or invest in growth.
- B2B only: Available for business-to-business transactions.
- Prepayment model: You receive a percentage of the invoice upfront, and the remainder (less fees) once the customer pays.
- Confidential or disclosed: Most facilities today are confidential, so your customers won’t know you’re using invoice finance.
Types of Invoice Finance
There are two main types:
- Factoring: The finance provider manages credit control and chases payments on your behalf.
- Invoice Discounting: You retain control of collections and manage customer relationships directly.
Most SMEs today opt for invoice discounting, thanks to modern accounting software like Xero, QuickBooks, and Sage.
Benefits for Growth-Stage Businesses
Invoice finance is particularly well-suited to businesses who are scaling and need to smooth out cash flow.
- Improved cash flow: Access funds faster to reinvest in growth.
- Flexible drawdown: Only borrow what you need, when you need it.
- Responsive to growth: Facilities scale with your sales, unlike fixed overdrafts or loans.
- Better supplier terms: Use early payments to negotiate discounts.
As our guest Chris Mitcham of Ultimate Finance puts it, “It’s your money, you’re just accessing it quicker”
Costs and Considerations
Invoice finance involves two main charges:
- Service charge: A fee based on turnover, covering facility management and risk monitoring.
- Discount charge: Similar to interest on the amount you draw down, like interest you’d pay on an overdraft.
You only pay interest on the funds you use, and facilities are tailored to your sector and risk profile.
Risks and How to Manage Them
- Customer concentration: Relying heavily on one client increases risk. Diversify your debtor book where possible.
- Bad debt protection: Optional insurance can protect against customer insolvency.
- Sector-specific challenges: Construction and contractual debt require specialist handling.
Most providers assess each deal individually, offering bespoke solutions based on your business model and sector.
Technology and Trust
Modern invoice finance is powered by tech, but built on relationships.
- Online portals: Upload invoices, track payments, and manage your facility in real time.
- E-signatures and ID checks: Streamlined onboarding with secure digital tools.
- Dedicated client managers: Every client has two points of contact for personalised support.
Getting Started
To apply for invoice finance, you’ll need:
- A current debtor ledger
- Recent financial statements
- Management accounts
- Bank statements
- Optional: forecasts and budgets, especially for larger facilities
Facilities can be set up for new starts or established businesses and tailored to your growth plans.
Exiting Invoice Finance
Worried about getting stuck? You’re not alone…but it’s easier than you think.
- Reduce usage: Simply draw down less or stop borrowing altogether.
- Adjust prepayment: Gradually lower your advance rate to wean off the facility.
- Open dialogue: Speak to your provider about exit options - they’re there to support you.
Average client relationships last around seven years, but you’re in control of how and when you move on.
Final Thoughts
Invoice finance isn’t just a funding tool, it’s a strategic enabler for growth. It helps you unlock the value of your sales, stabilise cash flow, and invest in your future.
Listen to our related Finance Focus Podcast: Solving Cash Flow Problems with Invoice Finance
