Invoice Finance vs Factoring: Unlock Cash Tied Up in Unpaid Invoices

If your business invoices other businesses and waits 30, 60 or 90 days to get paid, a large chunk of your cash can be stuck in your sales ledger. Invoice finance releases that cash early. Here's how it works and how it differs from factoring.

What is invoice finance?

Invoice finance lets you borrow against the value of your unpaid invoices - typically up to 80-90% of each invoice - as soon as you raise them, rather than waiting for the customer to pay. When the invoice is settled, you receive the balance minus the lender's fee. It turns slow-paying invoices into immediate working capital.

Invoice discounting vs factoring

• Invoice discounting: you keep control of your own credit control and collections, and the facility is usually confidential - your customers needn't know. Suited to established businesses with solid credit processes.
• Factoring: the lender also manages your credit control and collects payment from your customers on your behalf. This saves you admin but means the arrangement is visible to customers. Suited to smaller businesses or those wanting to outsource collections.

What does it cost?

Costs generally include a service fee (a percentage of turnover, covering administration) and a discount charge (interest on the funds advanced). The exact rate depends on your turnover, sector, customer quality and how quickly your invoices are typically paid.

Who is it for?

Invoice finance works best for B2B businesses that invoice on credit terms - manufacturers, wholesalers, recruitment agencies, logistics firms and professional services. It grows with your sales: the more you invoice, the more funding is available, making it a flexible alternative to a fixed overdraft.

Pros and cons at a glance

• Pros: improves cash flow, scales with turnover, releases capital without new long-term debt.
• Cons: costs money, depends on customer creditworthiness, and factoring is visible to customers.

How we help

Invoice finance providers differ significantly on fees, advance rates, contract terms and flexibility. We help you compare true costs, avoid restrictive contracts, and choose between discounting and factoring based on how your business actually operates. At Sadi's Commercial Finance we arrange invoice finance and factoring with trusted UK lenders.

Cash stuck in unpaid invoices? Explore our invoice finance service or speak to a specialist.