Unlock Working Capital: A Guide to UK Invoice Finance Options

For many UK businesses, the biggest barrier to growth is not a lack of sales, it is cash flow.

You deliver the work, raise the invoice, and then wait. With payment terms stretching to 30, 60, or even 90 days, a large portion of your working capital can sit unpaid in your sales ledger. In effect, you are funding your customers while your own plans stall.

This is where invoice finance can help.

Whether you are a startup looking to smooth out cash flow or an established firm funding rapid expansion, this guide covers everything you need to know about invoice receivable financing. We will break down the differences between selective and whole book facilities, explain when each works best, and help you decide which option is right for your business.

What is Invoice Finance?

Invoice finance is a form of receivables finance where a lender advances funds against your unpaid invoices. You typically receive up to 80-90% of the invoice value, often within 24 hours.

Instead of focusing solely on historic profits, lenders assess the strength of your business and the quality of your customer ledger. As a result, invoice finance can be available when traditional loans are not, or where borrowing limits would otherwise be restrictive.

This means invoice finance may be available where other lending products are not, or cannot provide the amount of funding your business requires.

Importantly, invoice finance is not a conventional loan. You are accessing money you have already earned, which makes it one of the most flexible funding options for UK B2B businesses. As your sales increase, the available funding grows alongside them.

How the Process Works

1. You invoice your customer after delivering goods or services.
2. You assign some or all outstanding invoices to the finance provider.
3. You receive funds, typically up to 80-90% of the invoice value within 24 hours (some lenders offer up to 95%).
4. Your customer pays the invoice on its due date.
5. The balance is released to you, minus the provider’s fees.

As invoices are raised and paid, they continually generate available funding. This creates a rolling working capital facility that adapts as your business grows.

What is Selective Invoice Finance?

Selective invoice finance, also known as spot factoring, allows you to release cash from individual invoices or specific customer accounts, rather than financing your entire sales ledger.

This approach offers a high level of flexibility. You choose which invoices to finance and when, while continuing to manage the rest of your invoicing and credit control in the usual way.

Selective invoice finance is often used by businesses that need short-term working capital support without committing to an ongoing invoice finance facility.

Key Characteristics of Selective Invoice Finance

Selective invoice finance differs from whole-ledger facilities in several important ways:

• No Ongoing Commitment: There is no requirement to finance invoices regularly or meet minimum usage levels.

• Transaction-Based Pricing: Fees apply only to the invoices you choose to finance, rather than your overall turnover.

• Quick Setup: Facilities can often be arranged within days, with relatively light documentation.

• Accessible for Startups: Some providers accept businesses with limited or no trading history, making this a viable option for early-stage companies.

• Invoice-by-Invoice Assessment: Each invoice is assessed individually, based on the creditworthiness and payment history of the specific customer.

Selective Invoice Finance Costs

Because lenders take on individual invoices without the economies of scale of a whole book facility, fees are typically higher.

Typical charges include:

• Fee per Invoice: Usually between 1.5% and 5% of the invoice value, applied for a set period (for example, 3% for the first 30 days).
• Additional Period Charges: Extra fees may apply if the invoice remains unpaid beyond the initial funding period.
• No Ongoing Service Fee: Unlike traditional invoice factoring or invoice discounting, there is typically no monthly or annual service charge.
• Setup Costs: Some providers charge an initial application or arrangement fee.

What is Whole Book Invoice Finance?

Whole book invoice finance is an ongoing funding facility where you finance your entire sales ledger, rather than picking and choosing individual invoices.

It operates as a revolving working capital facility that grows with your business. As you raise new invoices, they automatically generate available funding. When customers pay, that funding is repaid and becomes available again as further invoices are issued.

This structure provides consistent access to cash and is commonly used by established businesses with regular invoicing and predictable sales.

Key Characteristics

• Ongoing Facility: Operates like a revolving credit line that scales automatically with turnover.
• Lower Unit Costs: Financing the full ledger creates economies of scale, resulting in lower costs per pound funded.
• Consistent Cash Flow: Provides reliable, ongoing working capital to support day-to-day operations and growth.
• Minimum Commitment: Most facilities require a minimum contract term, typically around 12 months.
• Full Credit Assessment: Lenders carry out a detailed review of your business, financial accounts, and debtor book.
• Regular Reporting: You will usually submit periodic reports showing outstanding invoices and payments received.

Eligibility for Whole Book Invoice Finance

Whole book invoice finance is generally aimed at established B2B businesses. Providers typically look for:

• Minimum Turnover: Usually £250,000–£500,000+ per year, although some lenders will consider lower figures.
• Trading History: Most lenders require at least 12 months of trading accounts.
• B2B Trading: You must invoice other businesses on agreed credit terms.
• Payment Terms: Customers should typically settle invoices within 90 days.
• Quality Debtor Book: A spread of reliable, creditworthy customers without excessive reliance on a single debtor.

Whole Book Invoice Finance Costs

Whole book facilities usually include two main cost components:

• Service Fee (or Facility Fee): A percentage of your gross turnover, typically 0.2%-3%, covering the administration and operation of the facility. This fee is charged regardless of how much funding you draw down.

• Discount Charge (or Interest): This works in a similar way to interest on a loan. It is charged only on the funds you use, rather than the full facility limit. Typical rates are 1.5%-3% over the Bank of England base rate, calculated daily on the outstanding balance.

Comparison: Selective vs Whole Book Invoice Finance

Both selective invoice finance and whole book invoice finance allow you to release cash tied up in unpaid invoices. The difference lies in the level of commitment, flexibility, and how each option fits into your day-to-day business operations.

Selective vs Whole Book: Making Your Choice

Choosing between selective and whole book invoice finance depends on how regularly you need funding, your appetite for commitment, and how your business operates.

As a credit broker, Charles & Dean does not provide financial advice. The information below is intended as a general guide only, and you should always speak to your accountant, financial adviser, or other relevant professional before making an informed decision.

Use the questions below as a practical guide:

Are you a startup with little or no trading history?
Selective invoice finance may be more suitable, as lenders focus on the invoice and the customer rather than your track record.

Do you want the lowest possible cost of funding?
Whole book invoice finance can generally offer better value, as fees reduce with higher invoice volumes.

Is confidentiality important to you?
Confidential invoice discounting or selective invoice finance allows you to manage collections without involving a third party.

Do you want to avoid chasing late payments?
Invoice factoring can remove this burden by outsourcing credit control to the lender.

Do you have seasonal trading or occasional high-value invoices?
Selective invoice finance allows you to fund specific invoices only when needed.

Deep Dive: Invoice Discounting vs Invoice Factoring

If you have decided that a whole book invoice finance facility is right for your business, the next step is choosing between invoice factoring and invoice discounting.

Both options provide ongoing access to working capital, but they differ in one key area: who manages credit control and whether your customers are aware that you are using invoice finance.

Invoice Discounting

Invoice discounting is typically used by established businesses, often with turnover of £500,000 or more. It is a funding-only facility, allowing you to draw cash against your sales ledger while retaining full control over credit control and customer relationships.

Key Point: It is usually lower cost than factoring and can be set up as Confidential Invoice Discounting (CID), meaning customers are not aware that a lender is involved.

Best Suited To: Businesses with established internal credit control processes that want to maintain direct client contact.

Invoice Factoring

Invoice factoring is more commonly used by startups or smaller teams. It combines funding with outsourced credit control, with the lender managing your sales ledger, carrying out customer credit checks, and collecting payments.

Key Point: By transferring day-to-day credit management to the lender, factoring can reduce administrative workload and remove the need for in-house credit control.

Best Suited To: Businesses without a dedicated finance function or those that prefer not to manage payment collections internally.

The Pros and Cons of Invoice Finance

Invoice finance offers several advantages for UK businesses managing working capital:

• Improves cash flow quickly, often releasing funds within 24 hours of invoicing
• Uses unpaid invoices as security, reducing reliance on property or personal guarantees
• No loss of equity, allowing business owners to retain full ownership
• Flexible funding that grows with sales, as higher turnover increases available finance
• Compatible with other finance facilities, such as term loans or asset finance

 
While invoice finance is flexible, it is not without considerations:

• Ongoing administration and reporting, including regular ledger updates
• Contract commitments, with minimum terms often applying
• Customer perception, particularly with factoring where collections are outsourced
• No substitute for profitability, as funding reduces if sales decline

Sector-Specific Solutions

Certain industries use invoice finance more heavily due to payment structures:

• Wholesale: One of the industries most susceptible to invoice finance, driven by thin margins, high stock requirements, and long customer payment terms. Invoice finance helps wholesalers bridge the gap between paying suppliers and collecting from customers.
• Construction: Payment delays are common, and standard facilities may struggle with applications for payment or contract terms. Specialist lenders with sector experience are often required.
• Recruitment: Frequently used to fund weekly payroll while waiting for monthly
• client payments, often bundled with payroll solutions.
• Haulage & Transport: Helps manage fuel, maintenance, and operating costs when customers operate on extended payment terms.
• Professional Services: Agencies and consultancies usually prefer Selective Finance or Confidential Discounting to keep funding private and maintain client relationships.

Frequently Asked Questions

Q: What’s the main difference between selective and whole book invoice finance?

A: Selective invoice finance allows you to fund individual invoices as and when needed, with no ongoing commitment. Whole book invoice finance funds your entire sales ledger through an ongoing facility. Selective finance offers greater flexibility but higher costs per invoice, while whole book finance is typically better value for businesses with regular funding needs.

Q: Can I start with selective invoice finance and move to the whole book later?

A: Yes. Many businesses begin with selective invoice finance to access short-term funding or test invoice finance, then move to a whole book facility as turnover increases and funding needs become more consistent.

Q: Does invoice finance affect my credit rating?

A: Applying involves a credit check. Using the facility responsibly can improve your credit rating by ensuring you pay suppliers on time.

Q: What is non-recourse invoice finance?

A: Non-recourse facilities include bad debt protection. If an approved customer fails to pay, the lender absorbs the loss. This option is available for both selective and whole book facilities, although it comes at a higher cost.

Q: Is invoice finance a loan?

A: Not in the traditional sense. Invoice discounting operates like a loan secured against money you are already owed, while factoring involves selling invoices at a discount. In both cases, you are accessing cash from completed work rather than taking on unsecured debt, and it typically does not limit access to other business loans.

Q: How quickly can I access funds?

A: Selective invoice finance can often be arranged within days, with funds released within 24–48 hours of invoice approval. Whole book facilities take longer to set up, usually two to four weeks, but once in place, funding is typically available within 24 hours of issuing new invoices.

Q: What if I only issue one or two large invoices each month?

A: Selective invoice finance is well suited to this scenario. It allows you to fund only high-value invoices when needed, without paying ongoing fees on your entire ledger. While the cost per invoice is higher than whole book finance, it can be more cost-effective for occasional use.

Q: What is the minimum turnover for invoice finance?

A: This depends on the facility type. Selective invoice finance has low entry thresholds, with some providers supporting businesses from £30,000 turnover or even startups. Whole book facilities usually require annual turnover of £250,000-£500,000 or more, as they involve an ongoing commitment.

Ready to Unlock Your Working Capital?

Contact Charles & Dean today to compare invoice finance quotes tailored to your business.

We'll help you determine whether selective or whole book invoice finance is right for you, and find the provider offering the best combination of advance rate, fees, and flexibility for your specific needs.