How invoice finance works and when to use it

For many UK businesses, slow-paying invoices can create cash flow challenges. Even profitable companies can struggle if cash is tied up waiting for customers to pay. That’s where invoice finance comes in, a solution that allows businesses to unlock cash tied up in unpaid invoices and maintain smooth operations.

Understanding how invoice finance works and when it is most useful, can help your business grow without waiting for customer payments.

What is invoice finance?

Invoice finance is a type of business funding that allows you to borrow money against your unpaid invoices. Instead of waiting 30, 60, or 90 days for customers to pay, a finance provider advances a percentage of the invoice value immediately.

There are two main types of invoice finance:

1. Invoice Factoring – The finance provider collects payments from your customers on your behalf and manages the credit control process.
2. Invoice Discounting – Your business retains control over collecting payments, while the lender advances a percentage of the invoice value.

In both cases, businesses can access cash quickly, improving liquidity and maintaining cash flow for day-to-day operations.

How does invoice finance work?

The process is straightforward:

1. Submit unpaid invoices to your finance provider.
2. Receive a cash advance, usually between 70 to 90% of the invoice value.
3. The provider charges a fee or interest on the advanced amount.
4. Once the invoice is paid by the customer, the remaining balance is released, minus the agreed fees.

This approach turns invoices, normally a non-liquid asset into immediate working capital.

When to use invoice finance

Invoice finance is particularly helpful for businesses that:

• Experience long payment terms from clients
• Have rapid growth and need cash to fund expansion
• Need to maintain steady cash flow for payroll, stock or operational costs
• Want to avoid taking on additional debt or giving up equity

It is especially useful for businesses in sectors like manufacturing, wholesale, logistics, recruitment and B2B services, where invoices can take weeks or months to be paid.

Benefits of invoice finance

• Improved cash flow – Access funds tied up in unpaid invoices immediately.
• Growth support – Use the funds to invest in new opportunities without waiting for client payments.
• Flexible funding – The amount of funding grows with your sales, giving a scalable cash flow solution.
• Reduced credit risk – With factoring, the provider may manage credit control and collections.

Invoice finance does not rely on a business’s credit history, making it a viable option for start-ups or growing companies.

Considerations before using invoice finance

While it’s a powerful tool, invoice finance is not always the right fit. Consider:

• The fees and interest rates, which vary between providers.
• The relationship with customers, especially if using factoring, as the provider may interact with them directly.
• The need for consistent invoicing and accurate record-keeping to maximise efficiency.

Working with a specialist broker like NGI Finance can help businesses understand which type of invoice finance works best and which providers offer the most competitive terms.

To summarise

Invoice finance is an effective way to unlock cash tied up in unpaid invoices, support steady cash flow and fund business growth.

• Invoice factoring handles collections for you and provides immediate funds.
• Invoice discounting allows your business to maintain control while accessing cash advances.

By understanding how invoice finance works and when to use it, businesses can maintain liquidity, invest in growth opportunities and manage their operations more effectively. For further help please call our invoice finance specialists on 01993 706403 or email enquiries@ngifinance.co.uk.