Invoice finance
Invoice finance explained
Rook Bristol Editorial · Updated · 5 min read
The short answer
Invoice finance releases cash tied up in unpaid invoices. A lender advances most of an invoice's value shortly after you raise it, then pays the balance, minus fees, when your customer settles. With factoring the lender manages collections; with invoice discounting you keep control of your sales ledger and customers needn't know.
How does invoice finance work?
- You deliver goods or services and raise an invoice to a business customer.
- The lender advances an agreed percentage of the invoice value.
- Your customer pays on their usual terms.
- The lender releases the remaining balance, less its fees.
What's the difference between factoring and invoice discounting?
| Factoring | Invoice discounting | |
|---|---|---|
| Who chases payment | The lender | You |
| Do customers know? | Usually yes | Usually not (confidential) |
| Typically suits | Smaller or newer businesses | Established businesses with credit control in place |
When does invoice finance make sense?
- You sell to other businesses on 30 to 90 day terms.
- Your customers are creditworthy, but slow to pay.
- Growth means you're funding bigger orders before you're paid for the last ones.
It's less suited to businesses that sell mainly to consumers, or take payment up front. For those, revenue-based finance or revolving credit may fit better. See invoice finance for how our facility works, and cash-flow gaps and VAT quarters for the bigger picture.