If the saying “working capital is the lifeblood of all businesses” is true, and in my experience it is, then invoice finance is always going to be near the top of the list of funding products. And it is not just the availability of working capital that makes it attractive; the flexibility of the product appeals to businesses of all sizes, across a wide range of sectors, as funding via invoice finance follows the natural pattern of your business cycle.

There are more than 40 different providers of invoice finance in the UK lending – according to statistics from the Asset Based Finance Association (ABFA) – in excess of £17 billion to over 43,000 clients. These providers range from all the high street banks with many thousands of clients, to the smallest factoring companies with less than 100 clients.

What is Invoice Finance?

It is said that variations on invoice finance have been around in England since the 15th Century. Whilst it has always been a recognised source of working capital, it is only in the 21st century that the product has gained any real traction. This was following a change in case law (Brumark Investments Limited 2001) which affected the ability of banks to obtain a fixed charge on book debts in traditional overdraft situations. This has led to significant growth in the invoice finance market over the past decade, both in terms of the numbers of users, and in the numbers of products available in the market place.

In essence, then, the term invoice finance means an advance of funds from a bank, or specialist invoice finance company, secured against invoices raised for products or services supplied.  Funding products in this area fall into two main types: invoice discounting and factoring.

Invoice Discounting

An invoice discounting facility gives the user the ability to draw down funds against unpaid invoices. The company using the facility retains control of their sales ledger and the collection of their debts. Agreements are usually provided on a confidential basis such that clients are not aware their supplier is using this type of funding.

It can be a very flexible form of invoice finance, with limits normally moving in line with your business growth, making it particularly beneficial in the provision of working capital.

How it works

Details of invoices are provided to the invoice discounter who will then immediately release cash into your account at an agreed initial payment rate, commonly 80% (this will depend upon the financial strength and type of your business). The balance is then released upon collection from your customer.


The invoice discounter will make a small service charge for the service and an interest charge for the provision of the finance. This can be a more cost effective alternative to loans or overdrafts, and in most cases gives the borrower greater flexibility.

Trans Capital Insider tips

  • It is important to balance the provision of good service against cost. Low cost products can prove costly to your business at a later date.


Factoring is a full service form of invoice finance where the factor provides finance against the sales ledger and manages the credit control function. The facility will in most cases be disclosed and your clients will therefore be aware that you are using factoring.

How it works

Copy invoices are uploaded to the factor who will run a duplicate sales ledger on their system. Upon receipt of the invoices the factor will make available to you monies at the agreed initial payment level – say 80% (this will depend upon the financial strength and type of your business) with the balance being released to you when the invoice is paid.


An invoice finance company, in this case, will often include a service charge for providing the service and an interest charge for the time funds are drawn against unpaid invoices.

Trans Capital Insider tips

  • Top quality service is of paramount importance, as you are in effect outsourcing the running of your sales ledger, including the credit control function. Make sure you are comfortable with the level of service that you are likely to receive from your chosen factor. Try to meet the team that will be managing your account before signing on the dotted line.
  • A product that has a very low headline rate may prove expensive to your business in the longer term as it is not sustainable for any factor to provide top quality service at the lowest price.
  • When comparing factoring costs to an overdraft, always take into consideration the additional credit control services provided.

Practical assistance from Trans Capital

To learn more about the invoice finance options available to you, we have developed a useful eBook called Understanding Invoice Finance.

Our eBook offers you a clear overview of invoice finance and its varoius products; hints and tips on the good and the “not-so-good” in the industry; and help to decide if invoice finance is right for your business.

Alternatively, you can set up a confidential consultation with us to discuss your situation.
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