Invoice Finance Explained

Edited: March 2026

Invoice finance is a form of asset finance that allows businesses to unlock cash tied up in unpaid invoices. Rather than waiting weeks or months for customers to pay, invoice finance provides earlier access to funds, helping to support cash flow and day to day operations.

This guide explains how invoice finance works, the main types available, and when it may be suitable for a business. At GPS Financial, we regularly advise companies on invoice finance and wider asset finance solutions, helping clients choose funding that genuinely fits their circumstances.

What Is Invoice Finance?

Invoice finance allows a business to raise funds against its unpaid invoices. Instead of waiting for customers to pay under standard payment terms, a finance provider advances a percentage of the invoice value.

Once the customer settles the invoice, the remaining balance is released to the business, minus the lender’s fees. Invoice finance is also commonly referred to as receivables finance.

For many businesses, this can be an effective way to release working capital tied up in the sales ledger, particularly where long payment terms place pressure on cash flow.

How Does Invoice Finance Work?

In most cases, the finance provider advances a proportion of the invoice value, often up to around 80%. The remaining balance is paid once the customer settles the invoice, less any agreed fees.

Depending on the type of facility used, the finance provider may either manage collections or allow the business to retain control of its own credit control process.

Invoice finance is usually quicker to arrange than traditional bank lending and can often be set up within days rather than weeks.

Advantages and Disadvantages of Invoice Finance

Advantages

Invoice finance can provide several benefits for businesses with reliable invoicing and creditworthy customers.

Confidentiality
Many invoice finance facilities operate confidentially, meaning customers are not aware that funding is in place.

Flexibility
Funding is typically linked to invoice values, allowing borrowing levels to grow alongside sales.

Speed
Funds can often be accessed within 24 hours of issuing an invoice, helping businesses maintain steady cash flow.

Higher borrowing potential
Because borrowing is linked to turnover rather than fixed limits, funding capacity can increase as the business grows.

Disadvantages

Invoice finance is not suitable for every business.

Customer profile
Finance providers generally prefer invoices issued to established and creditworthy customers. Businesses trading mainly with smaller or newer companies may find fewer options available.

Cost
Invoice finance includes service and discount fees, typically charged as a percentage of invoice value. While cash flow improves, businesses must weigh the cost against the benefit of early access to funds.

Types of Invoice Finance

There are two main types of invoice finance used by UK businesses.

Invoice Factoring

With invoice factoring, the business sells its outstanding invoices to a finance provider who advances funds and takes responsibility for collecting payment from customers.

This can reduce administration but may not suit businesses that prefer to retain direct control of customer relationships.

Invoice Discounting

Invoice discounting allows a business to borrow against unpaid invoices while continuing to manage its own credit control.

Funds are advanced upfront and once the customer pays the invoice, the remaining balance is released after fees. This option is often used by established businesses with their own finance teams.

How Much Does Invoice Finance Cost?

The cost of invoice finance varies depending on several factors, including invoice values, the credit quality of customers, and the average payment period.

Fees are commonly charged as a percentage of the invoice value, typically ranging between around 1.5% and 5%. Businesses with higher invoice volumes may benefit from lower rates.

Some providers also offer fixed fee structures. Understanding the full cost of a facility is important before proceeding, as pricing models vary between lenders.

Can Small Businesses and Start Ups Use Invoice Finance?

Yes. Invoice finance is often used by small businesses and growing companies because approval is based largely on the strength of the invoices rather than long trading history.

Invoice finance is a form of asset based funding and can sometimes be easier to access than traditional loans or overdrafts.

You can read more about asset based funding here

How GPS Financial Can Help

Choosing the right invoice finance solution depends on your customer base, payment terms, and overall cash flow cycle.

At GPS Financial, we take the time to understand how your business operates before recommending any funding solution. Invoice finance can work well in the right circumstances, but it is not always the most suitable option.

We review the available funding routes and work with a wide panel of lenders to identify appropriate solutions, subject to status.

Invoice finance is not currently regulated by the Financial Conduct Authority, which makes independent advice particularly important.

Independent guidance on business finance is available from the British Business Bank

Speak to GPS Financial

If you are considering invoice finance or want to explore ways to improve business cash flow, speak to the team at GPS Financial.

We provide clear, practical advice on business funding and help businesses secure finance that supports long term stability and growth.

Call 029 2267 7707 or contact us here