For many businesses, particularly those offering credit terms, cashflow can become constrained by the gap between raising an invoice and receiving payment.
Invoice finance is designed to solve this challenge.
What is Invoice Finance?
Invoice finance is a form of short-term funding where a business can unlock cash tied up in unpaid invoices.
Instead of waiting 30, 60 or even 90 days for customers to pay, a lender advances a percentage of the invoice value. Typically between 70% and 90%, often within 24–48 hours.
This allows businesses to maintain consistent cashflow while continuing to trade and grow.
Invoice finance is widely used across sectors including construction, retail, logistics and wholesale, particularly where extended payment terms are common.
Invoice Finance vs Invoice Factoring
Invoice finance (also known as invoice discounting or receivables finance) differs slightly from invoice factoring.
With invoice finance, businesses retain control of their customer relationships and collections process.
With invoice factoring, the lender may take over credit control and collections, meaning customers are aware of the funding arrangement.
For many established businesses, invoice finance provides a more discreet and flexible solution.
How Invoice Finance Works
The process is straightforward:
- Goods or services are delivered and invoices are raised
- Invoice details are submitted to the lender
- Up to 90% of the invoice value is advanced, typically within 48 hours
- The customer pays the invoice as normal
- The remaining balance is released to the business, less fees
This structure allows businesses to convert sales into immediate working capital, rather than waiting for payment cycles to complete.
Why Businesses Use Invoice Finance
Invoice finance is particularly effective where:
- A large proportion of working capital is tied up in receivables
- Customers operate on extended payment terms
- Businesses are growing and need cash to support increased demand
Key benefits include:
- Improved and predictable cashflow
- Ability to offer competitive credit terms to customers
- Funding that grows in line with turnover
- Minimal additional security requirements
However, it’s important to recognise that invoice finance is still a form of borrowing, with associated fees and ongoing responsibilities for collections (in most cases).
Where Invoice Finance Fits Within a Wider Funding Strategy
While invoice finance addresses the receivables side of a business, many companies also face pressure earlier in the cycle, particularly when purchasing stock or funding production.
This is where trade finance comes in.
Trade finance supports the supply side, enabling businesses to pay suppliers upfront, fund imports, and manage production timelines without tying up internal cash reserves.
Bringing It Together – A Practical Example
We recently supported a UK-based fashion retailer importing seasonal stock from overseas.
The business faced a common challenge:
- Supplier payments were required upfront and during production
- Goods were shipped and distributed to UK stores
- Customers were then given standard credit terms
This created a significant funding gap between paying suppliers and receiving customer payments.
To address this, we structured a combined facility:
Trade finance was used to fund production and shipment, ensuring the retailer could secure stock without impacting working capital.
Once goods were sold and invoices raised, invoice finance was introduced to release cash tied up in receivables.
This enabled the business to:
- Repay the trade finance facility
- Maintain strong supplier relationships
- Preserve internal liquidity
- Continue placing orders for future seasons
A Smarter Funding Cycle
By combining trade finance and invoice finance, the business created a continuous and scalable funding model:
- Suppliers funded via trade finance
- Stock converted into sales
- Sales converted into cash via invoice finance
- Facilities repaid and recycled
This approach transforms funding from a constraint into a tool for growth.
Supporting Your Growth Strategy
Many businesses use trade finance or invoice finance in isolation.
However, when structured together correctly, they provide a powerful solution that aligns funding with your trading cycle.
At Business Finance Solutions, we work with clients to design funding structures that support growth, improve cashflow and maximise efficiency.
If your business is experiencing cashflow pressure, planning expansion, or looking to increase capacity without injecting additional equity, it may be time to review your current funding approach.
We would be happy to provide a tailored solution based on your business model and objectives.
