Invoice finance: turn unpaid B2B invoices into working capital

After the business raises an eligible invoice, the provider makes an initial advance. When the customer pays, the provider releases the remaining balance after deducting funding and service charges. The facility changes as invoices are raised, paid, aged or made ineligible.

The provider is advancing against a receivable, not the company’s forecast sales. Work must normally be completed and the invoice undisputed. Pro-forma invoices, stage payments, consumer receivables and very old debts may be excluded.

Factoring usually includes credit-control and collections support and is commonly disclosed to customers. This can save administration but changes the customer experience. Invoice discounting provides the funding while the business retains day-to-day collection, and it can be confidential where the provider and process allow.

Selective or spot finance funds chosen invoices or customer accounts rather than the whole ledger. It can reduce commitment, but single-invoice pricing may be higher and the provider will still test the customer, documentation and risk of set-off or dispute.

With recourse invoice finance, the business remains responsible if the customer does not pay. Once an invoice passes the provider’s ageing limit, its advance may be deducted from availability or reclaimed. That can create a cash call at the moment the business is already dealing with a bad debt.

Non-recourse or bad-debt-protected facilities can cover defined credit risks, but exclusions, credit limits and disputes matter. Protection does not mean every unpaid invoice is insured. Read the policy and funding agreement together.

The headline advance percentage applies only to eligible invoices and often after reserves. Providers may limit exposure to one customer, one sector, exports, contractual rights of set-off or debt beyond a certain age. If one customer represents half the ledger, the usable facility may be much smaller than half the invoice value suggests.

A service fee may be linked to turnover or invoice value. A discount charge then applies to cash in use, rather like interest. Other charges can cover audits, bad-debt protection, minimum volume, same-day transfers, concentration, setup and early termination.

Model fees against forecast sales and actual payment days. Faster-paying customers reduce the funding period; slower customers raise the discount cost. Also model a month of lower sales, because availability can contract just as fixed costs remain due.

Invoice finance fits B2B companies that sell completed goods or services on credit to creditworthy customers and have reliable invoice administration. It can support rapid growth because funding capacity can rise with eligible sales.

It is a weak fit for cash or consumer businesses, heavily disputed billing, very long milestones or a ledger dominated by one vulnerable buyer. Before signing, ask customers how they will experience notices, account changes and collection contact.