Invoice discounting
Borrow against your unpaid invoices while you keep collecting payments from customers yourself, usually without them knowing you use finance.
- Secured on invoices
- Personal guarantee likely
How it works
Invoice discounting is the other main kind of invoice finance, alongside factoring.
- A provider advances money against your unpaid invoices, often up to 90% of their value.
- You keep control of your sales ledger and collect payments from your customers yourself.
- It is usually confidential, so customers do not know you use it.
- You pay a fee, plus a discount charge (like interest) on the money you use, similar to an overdraft.
Upsides and downsides
Upsides
- Turns unpaid invoices into cash quickly
- Usually confidential, so customer relationships are unchanged
- Funding grows as your sales grow
- You keep control of collections
Downsides
- You still do all the credit control work
- Fees and charges reduce your margin
- Contracts can have minimum terms and fees for leaving
Risks
- You usually carry the risk if a customer does not pay
- Becoming dependent on the facility
- A personal guarantee or indemnity can make you personally liable
What it costs
- How it is priced
- A service fee plus a discount charge (like interest) on the money you draw
- Costs that are easy to miss
- Minimum fees, contract terms and charges for ending the agreement. Check them before you sign
- The provider may ask for a personal guarantee or indemnity from the directors
Up to around 90% of approved invoices, rising and falling with your sales.
Have a quote? Cost of invoice finance: work out a typical year's fees
Does it fit?
Could fit when
- You sell to other businesses on credit and have good credit control
- You want to keep your financing confidential from customers
Unlikely to fit when
- Your customers are consumers or pay on the spot
- You do not have the systems to manage your own sales ledger well
- Your unpaid invoices are worth less than the amount you need
Who can use it
- Business types: Sole trader, Partnership, Private limited company, LLP, Public limited company, Community interest company, Co-operative or community benefit society, Charity
- Needs sales (revenue)
- Only for businesses that sell to other businesses
- You invoice other businesses on credit terms
- You need reliable credit control and financial reporting, because you collect the debts yourself
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all asset-based and specialist lending
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- Aged debtors report
- Credit control process
- Management accounts
Regulation and protections
Commercial finance is not generally subject to statutory conduct regulation in the UK. Providers that are UK Finance members follow its Invoice Finance and Asset-Based Lending Standards Framework, with a free independent complaints process run by CEDR (awards of up to £50,000).
Types of provider: Bank-owned invoice finance providers; Independent invoice finance companies.
Also consider
Sources
- British Business Bank: Working capital finance options · checked 7 October 2026
- UK Finance: Invoice finance and asset-based lending · checked 7 October 2026
- UK Finance: The Standards Framework for Invoice Finance and Asset-Based Lending (January 2025) · checked 7 October 2026