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Invoice finance guide: types, benefits, and choosing the right option

Invoice finance can be a lifeline for businesses dealing with cash flow issues or late payments. It helps bridge financial gaps, so you can keep things running and focus on what matters most.

What is invoice finance?

Invoice finance lets you access cash tied up in unpaid invoices. Instead of waiting weeks or months for clients to pay, you can get those funds almost immediately. This can help you cover daily expenses, pay staff, or invest in growth without taking on traditional loans.

The two most common types of invoice finance are factoring and discounting, each offering unique benefits to suit different needs.

 

Why invoice finance matters

For businesses of all sizes, cash flow is crucial. Payment delays can put pressure on operations, staff, and suppliers. Invoice finance provides a solution by turning unpaid invoices into accessible funds, helping you:

  • Cover operational costs
  • Pay employees on time
  • Invest in new opportunities
  • Reduce financial stress

With invoice finance, you don’t have to wait for payments to keep your business moving.

 

Types of invoice finance

There are several ways invoice finance can work, depending on your business needs:

 

Invoice factoring

You sell your unpaid invoices to a provider (a factor), who gives you a percentage of the invoice value upfront. They then collect the payment directly from your customer.

 

Benefits of invoice factoring

  • Quick access to cash
  • The provider handles chasing payments, saving you time

 

Disadvantages of invoice factoring

  • Your customers will know you’re using a factoring service
  • You’ll have less control over how invoices are managed

Factoring works well for small businesses without a credit control team or those who want to save time on payment collections.

 

Invoice discounting

You get an advance on unpaid invoices but continue to manage customer payments yourself. This option is more discreet, as customers aren’t aware of the arrangement.

 

Advantages of invoice discounting

  • Keep control of customer relationships
  • No visible changes in how invoices are handled

 

Disadvantages of invoice discounting

  • Requires strong internal credit management
  • You’ll need to handle the admin side of chasing payments

Invoice discounting is ideal for larger businesses with reliable credit control systems.

 

Selective invoice finance

You choose specific invoices to finance, rather than committing to all your invoices. This can help manage short-term cash flow challenges without a long-term commitment.

 

Advantages of selective invoice finance

  • Flexibility to finance only what you need
  • No ongoing contracts

 

Disadvantages of selective invoice finance

  • Higher one-off fees
  • Requires active management to choose invoices

 

Spot factoring

This is a one-off arrangement where you sell a single invoice for quick cash. It’s useful for covering unexpected expenses or filling short-term gaps.

 

Advantages of spot factoring

  • No long-term commitment
  • Fast access to funds

 

Disadvantages of spot factoring

  • Higher fees compared to ongoing agreements
  • Not suitable for regular cash flow needs

 

Benefits of invoice finance

  • Improved cash flow: Get paid quickly without waiting for invoices to clear.
  • Flexibility: Choose the type of finance that fits your needs.
  • Scalability: As your business grows, so does the amount of funding available.
  • Reduced risk: Non-recourse options protect you from clients who don’t pay.

By turning unpaid invoices into working capital, you can focus on running and growing your business.

 

Disadvantages of invoice finance

While invoice finance is a helpful tool, it’s important to understand the downsides:

  • Higher costs: Fees can be higher than traditional loans.
  • Impact on customer relationships: If using factoring, customers may notice the change.
  • Credit management: You’ll need a reliable system to handle non-recourse finance.

It’s worth weighing the costs and benefits to see if it’s the right fit for your business.

 

Choosing the right invoice finance option

To find the best solution for your business:

  1. Understand the costs: Compare fees, including interest rates, admin charges, and any hidden costs.
  2. Assess your needs: Think about whether you need short-term help or long-term support.
  3. Check provider reputation: Look for ethical providers with good reviews and experience in your industry. Try to find the top invoice finance providers in your location and compare.
  4. Consider flexibility: Choose a provider that can grow with your business and offers tailored options.

 

Case study: how invoice finance has helped agencies


“The Risecap team were great at responding to our needs quickly and with all the information we needed to make a proper decision!” – Svein Clouston, We Are Rationale

The agency was growing rapidly, having doubled its revenues in the previous year from £350k to £750k. While they were securing bigger clients and projects, longer delays between billing cycles created cash flow gaps, making it difficult to pay staff and suppliers on time.

That’s where Risecap came in. The agency had previously been offered a standard fixed-term loan of £100k at 21% interest over 5 years, with a personal guarantee. We sourced the same loan at a reduced rate of 17%, saving them £1,500 in arrangement fees. The loan terms allowed for monthly overpayments, giving them flexibility to reduce the debt sooner if needed. This funding supported their business development activities and ensured consistent payroll.

In addition, we secured £210k through an invoice finance product that didn’t require clients to change payment accounts. This solution avoided disruptions to client relationships while providing the cash flow needed to manage operations smoothly.

 

How Risecap can help

At Risecap, we believe in ethical finance that supports businesses without unnecessary stress or complexity. Our invoice finance solutions are transparent, flexible, and designed to fit your needs. Whether you need a one-off cash boost or ongoing support, our team is here to help.

Let us help you manage cash flow with confidence and focus on growing your business. Book a call now!

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