Summary — quick answer

Compare invoice finance with overdrafts when your need is short-term and small, with a Revolving Credit Facility (RCF) when you want a committed, flexible credit line for predictable borrowing, and with asset finance when the requirement is for equipment or vehicles (or to unlock cash via sale & leaseback). Invoice finance is usually the best match where large sums are tied up in unpaid customer invoices and your funding needs grow with sales. For a personalised, no-obligation match to lenders and brokers, Get Quote Now — Free Eligibility Check.

What is invoice finance?

Invoice finance (also called invoice financing) is a set of solutions that convert unpaid invoices into working capital. Two common forms are:

• Factoring: a funder buys or manages your invoices and typically collects payments from your customers. Advance rates commonly range from 70–90% of invoice value.
• Invoice discounting: you retain responsibility for collecting customer payments; the funder advances cash against outstanding invoices, often confidential to customers.

Benefits: fast access to cash tied in receivables, funding that scales with sales, and improved liquidity for payroll, suppliers or growth. Drawbacks include fees, possible customer contact (factoring) and lender checks on debtor quality.

Read an in-depth guide to invoice finance if you need more detail on structures and terms: invoice finance.

Why compare alternatives?

Choosing between invoice finance, an overdraft, an RCF or asset finance depends on drivers such as:

• All-in cost (interest + fees)
• Speed of access and application time
• Security required and covenant burden
• How the facility scales with your business
• Impact on customer relationships and confidentiality

The next sections outline each alternative, how it compares to invoice finance, and when you should favour one over the other.

1. Bank overdrafts

What it is: an overdraft lets you run your business account below zero up to an agreed limit. Interest is charged on the overdrawn amount and often on a variable basis.

When overdrafts work best

• Small, short-term cash gaps (seasonal spikes or one-off timing mismatches)
• Businesses that want a simple top-up from their main bank

Pros

• Simple and usually linked to your business current account
• Flexible day-to-day use for smaller sums
• No asset-specific security in many cases (depends on the bank and limit)

Cons

• Rates can be high and variable; banks can reduce or withdraw facilities
• Not usually sized for rapid scaling or large volumes of receivables
• May have review clauses and informal limits on use

Invoice finance vs overdraft: overdrafts are generally better for transient, small shortfalls. Invoice finance is better if a significant proportion of your cash is tied up in invoices and you need funding that grows with sales. Compare the effective monthly cost: overdraft interest vs invoice finance fees + interest on advances.

Want help comparing overdrafts and invoice finance? Get Quote Now — Free Eligibility Check.

2. Revolving Credit Facility (RCF)

What it is: an RCF is a committed line of credit a bank or lender offers up to an agreed limit. You draw, repay and redraw during the facility term. Larger RCFs often include financial covenants and security.

When RCFs work best

• Established businesses with predictable borrowing needs
• Companies requiring a single, clean facility for working capital, capex or acquisitions

Pros

• Committed availability up to a set limit
• Often more cost-effective for larger, lower-risk businesses
• Manageable reporting so you can forecast borrowing more easily

Cons

• Requires covenants, more documentation and monitoring
• Security and charges may restrict other finance options
• Negotiation can take longer than invoice finance set-up

Invoice finance vs RCF: RCFs give predictable committed borrowing; invoice finance scales with sales and is faster to deploy for businesses with significant receivables. Choose an RCF when you need a single facility and can meet covenant reporting.

Need help comparing RCFs and invoice finance? Free Eligibility Check.

3. Asset finance (hire purchase, leasing, sale & leaseback)

What it is: asset finance covers hire purchase, finance leases and sale & leaseback. It lets you acquire or extract value from tangible assets — vehicles, plant, machinery, IT or fleet.

When asset finance works best

• Buying or upgrading core equipment or vehicles
• Releasing cash from owned assets via sale & leaseback

Pros

• Typically lower rates because the asset provides security
• Predictable repayments and options to own or return the asset
• Sale & leaseback can release substantial cash quickly

Cons

• Does not directly fund receivables or day-to-day working capital
• Less flexible for variable cashflow needs unless combined with other facilities

Invoice finance vs asset finance: invoice finance supplies cash from sales; asset finance funds capital expenditure. For many businesses the two complement each other — asset finance to buy growth-enabling equipment, invoice finance to smooth receivable-driven working capital.

Compare asset finance and invoice funding options: Get Quote Now — Free Eligibility Check.

Practical checklist — how to compare quotes

Use this checklist when you receive offers:

• All-in cost: interest, arrangement, renewal, admin and exit fees
• Advance rate / reserve % (invoice finance)
• Recourse vs non-recourse factoring
• Minimum terms, notice periods and early repayment charges
• Security, fixed or floating charges and impact on other facilities
• Covenants, reporting and monitoring requirements (RCFs)
• Speed of drawdown and application to payment time
• Customer confidentiality (factoring vs discounting)

Short worked example: if an invoice finance provider charges a 1% factoring fee + 8% interest on advances and advances 85% of invoices, compare the monthly effective cost to your overdraft interest on the same drawn amount — don’t forget setup and admin fees.

Want a side-by-side comparison? Start your free eligibility check.

Typical pricing & what to expect

Rates vary by lender and risk. Typical UK ranges (indicative):

• Overdrafts: variable rates often quoted as bank base rate + margin (or a negotiated %).
• Invoice finance: service/factoring fees commonly 0.5–2% of invoice value plus interest on advances (the exact mix depends on debtor risk and sector).
• Asset finance: rates reflect asset type, age and term; sale & leaseback pricing depends on asset value and residual.

Always ask for a full written cost schedule and example amortisation before choosing a facility.

Get a clear, no-obligation quote: Get Quote Now.

Short examples

Construction sub-contractor (60–90 day terms)

Problem: cash tied up in long client payment terms. Solution considered: invoice factoring to access 85% advance and fund payroll; overdraft insufficient for scale. Outcome: factoring provided reliable cashflow while the business bid for bigger contracts.

Logistics company needing new trucks

Problem: fleet renewal tied to cashflow. Solution considered: asset finance (hire purchase) for trucks plus selective invoice discounting to smooth day-to-day working capital. Outcome: asset finance spread cost of trucks; invoice finance supported growth during ramp-up.

How UK Business Loans helps you compare

We do not lend money or provide regulated financial advice. UK Business Loans introduces your business to experienced lenders and brokers who can provide tailored quotes. We handle the matching so you save time and increase the chance of a suitable offer.

Our easy process: complete a short enquiry (under two minutes), tell us the amount (we typically handle from £10,000 upwards), turnover band and funding purpose, then we match you with the best panel contacts who will respond with quotes. No obligation, just options.

Ready to compare offers? Get Quote Now — Free Eligibility Check

FAQs

Is invoice finance suitable for all sectors?

It suits many sectors with invoice-driven sales — construction, manufacturing, logistics and many B2B service firms — but suitability depends on debtor quality and payment terms.

What is recourse vs non-recourse factoring?

Recourse means you remain ultimately liable if a customer doesn’t pay; non-recourse shifts some credit risk to the funder but is more expensive and subject to strict eligibility rules.

Can I have multiple facilities at once?

Yes — many businesses combine overdrafts, invoice finance and asset finance. Ensure you check priority of security and any cross-default clauses before agreeing.

How long does approval take?

Invoice finance can be set up rapidly for straightforward debtor books (often days); RCFs and asset finance can take longer due to valuations and covenant negotiation.

Next steps

If you have unpaid invoices that are slowing growth, compare options now. Submit a quick enquiry (free and no obligation) and we’ll match you to lenders and brokers who specialise in your sector and funding need.

Get Quote Now — Free Eligibility Check | Or call us on 020 1234 5678.

Note: the enquiry form is for information only — it helps us match you to the right providers; it is not a formal application.

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