Compare invoice financing vs revolving credit for building services cash flow

Table of contents

• Why cash flow is critical for building services
• What is invoice financing?
• What is revolving credit?
• Invoice financing vs revolving credit — direct comparison
• Cost drivers & what to check on proposals
• Practical steps for building services businesses
• How UK Business Loans helps
• Mini case studies
• FAQs
• Next steps & compliance

Why cash flow is critical for building services

Building services firms (M&E, HVAC, fit-out contractors, electrical and plumbing subcontractors) typically face cash pressure because of: stage payments, long supplier lead times for materials, 28–90 day customer terms, retention deductions, and labour-heavy payroll profiles. Poor cash flow stalls projects, risks supplier relationships and limits tendering capacity.

• Common pain points: delayed customer payments, high up-front material costs, retentions held for months, client concentration risk, seasonal demand spikes.
• If your business wins larger contracts but struggles to fund materials or payroll between invoice issue and payment, financing choices matter.

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What is invoice financing?

Invoice financing unlocks cash tied up in unpaid invoices. The two main forms are factoring (provider handles collections and may notify customers) and invoice discounting (more confidential, you keep collections). How it works, step-by-step:

1. You raise and submit invoices to the finance provider.
2. The provider advances a percentage of the invoice value (commonly 70–90%) within 24–72 hours.
3. When the customer pays, the provider returns the reserve balance less fees and any bad-debt deductions.

Product variants: disclosed vs confidential, full-service factoring (credit control included), and selective invoice finance (factor specific invoices only). Invoice finance suits businesses with predictable invoices, long payment terms (30–120 days) and strong trade receivables. It can also include credit protection for non‑payment (optional, at extra cost).

Building-services note: invoice finance works well when you have sizeable outstanding invoices from principal contractors, subcontractor chains or long payment cycles — but check whether retentions are eligible (many providers will not fund retentions unless separate retention finance is arranged).

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What is revolving credit?

A revolving credit facility (RCF) or business overdraft is an agreed maximum borrowing limit you can draw, repay and redraw against. Interest is charged only on amounts drawn. Key features:

• Agreed limit (e.g. £50k, £250k+). Flexible for day-to-day working capital.
• Fees: arrangement/commitment fees, utilization charges; interest margins quoted as an annual rate.
• Often provided by banks, challenger banks or specialist lenders; may require security (company charge, asset or personal guarantees).
• Renewal and covenant conditions can apply on larger facilities.

For building services, an RCF is useful for ongoing material purchases, seasonal peaks and smoothing cash flow between stage payments. It’s generally less administratively heavy than factoring but requires discipline to manage drawdowns and covenants.

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Invoice financing vs revolving credit — direct comparison

Feature	Invoice financing	Revolving credit
Typical cost	Discount/fee 0.5–3% per invoice period + service fees; can be higher for high-risk clients	Interest margin ~6–15%+ p.a. depending on lender; plus arrangement/commitment fees
Security / guarantees	Usually charge over receivables; less need for property security	May require charges over assets or personal guarantees on larger limits
Speed to funds	Fast — often 24–72 hours once set up	Setup can take days–weeks (credit checks, security) but redraw is instant once approved
Customer relationship impact	Factoring (disclosed) notifies customers; discounting keeps relationship private	No direct impact on customers
Admin burden	Higher (submit invoices, reconciliations, collections)	Lower day-to-day admin
Best for	Large, slow-paying invoices, rapid growth funded by receivables	Ongoing working capital, seasonal swings, short-term material purchases

When to pick which

Scenario A — A subcontractor wins a 12‑week fit‑out and must buy materials now while waiting 60 days for payment: invoice finance is often the better fit for large invoices and rapid cash. Scenario B — An M&E firm with seasonal demand and predictable monthly payroll: a revolving credit facility can be cheaper and more flexible. Scenario C — If you have high retentions: invoice finance may not release retentions unless a retention funding product is added; check with brokers.

Quick checklist: contract length, typical invoice value and age, retentions, willingness to notify customers, appetite for security, and expected cost tolerance.

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Cost drivers & what to check on proposals

Costs vary widely — always compare full fee structures and examples. Key items to review:

• Invoice finance: advance rate (how much up-front), discount rate (fee %), admin/service fees, credit-control charges, funding days, and client concentration penalties.
• Revolving credit: interest rate on drawn amounts, arrangement fee, commitment/unused facility fees, valuation/monitoring fees, and covenant triggers.

Worked example (illustrative): You need £50,000 now.

• Invoice finance: advance 85% = £42,500 now. If discounting fee = 2% on £50,000 (£1,000) and service fees £200, net cash after fees when client pays might be lower — effective short-term cost can be comparable to a 12–20% annualised rate depending on payment timing.
• Revolving credit: drawing £50,000 on a facility with 12% p.a. interest costs ~£492 per month (roughly), plus any arrangement/commitment fees — cheaper for short draws if interest is lower and facility fees modest.

Always ask lenders for an illustrative schedule showing the total cost over the likely draw/collection period.

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Practical steps for building services businesses

How to prepare before approaching lenders or brokers:

• Produce an aged debtor report, copies of major invoices, signed subcontracts or POs and recent management accounts.
• Create a short 3‑month cashflow forecast showing when invoices are issued and expected receipts.
• Note concentration: if >30% of invoices go to one or two customers, some providers will add margin or restrict advance rates.
• Decide whether you are willing to grant security or personal guarantees — this affects costs and approval speed.

Questions to ask any proposal:

• What is the advance rate and what fees apply at invoice maturity?
• Are retentions fundable? Are customer credit checks included?
• What security or covenants are required and what is the renewal notice period?

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How UK Business Loans helps

UK Business Loans connects building services companies with lenders and brokers who specialise in working-capital and cashflow solutions. We don’t lend ourselves — we match your enquiry to the right providers quickly so you can compare real offers. Our service is free and designed to save you time when you need working capital of around £10,000 and upwards.

If you want to review market options for building services funding, see our industry page on building services business loans for sector-specific guidance.

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Mini case studies

Case 1 — Electrician subcontractor

Problem: 60-day payments delayed materials and payroll. Solution: Selected invoice factoring with a disclosed service (principal contractor aware) — advance rate 80%. Outcome: Cashflow stabilised, took on two extra contracts and repaid the facility as invoices cleared.

Case 2 — HVAC contractor

Problem: Seasonal winter surge required upfront materials. Solution: Revolving credit facility with a challenger bank — lower cost for short seasonal draws and no customer-facing changes. Outcome: Lower finance costs on seasonal spend and easier cashflow smoothing.

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Frequently asked questions

Will invoice finance affect my customer relationships?

It depends. Disclosed factoring notifies customers that a provider will handle payments; invoice discounting is confidential. Choose accordingly.

Can I use both invoice finance and a revolving credit facility?

Yes — some businesses combine solutions (eg. an RCF for short-term needs and invoice finance to unlock large receivables). Speak to a broker to design a blended structure.

How long does approval take?

Invoice finance can release funds within 24–72 hours after setup; establishing an RCF may take longer depending on security checks. Typical match response from our partners is often within hours to a day.

Do I need to provide personal guarantees?

Some lenders require personal guarantees, particularly for larger facilities or where company security is limited. Always confirm with the provider.

Is the enquiry an application?

No — the enquiry form collects information to match you with suitable lenders or brokers. It is not a loan application.

Next steps & compliance

Ready to compare tailored offers? Complete a short enquiry and we’ll match you with specialist brokers and lenders who understand building services. Get Quote Now — Free Eligibility Check.

Important: UK Business Loans is an introducer and not a lender. We do not provide regulated financial advice. By submitting your details you consent to us sharing them with selected finance partners so they can provide quotes. Example rates and fees shown here are illustrative — actual terms depend on provider, security and your business circumstances.

1. Which is better for building services: invoice financing or a revolving credit facility?
– It depends — invoice financing is usually best for large, slow‑paying invoices and rapid growth funded by receivables, while a revolving credit facility (RCF) is typically cheaper and more flexible for short‑term, seasonal working‑capital needs.

2. How much does invoice financing cost for building services companies?
– Typical invoice finance fees range from about 0.5–3% per invoice period plus service/admin charges (effective annualised costs vary with invoice age, advance rate and provider).

3. What is a revolving credit facility (RCF) and when should my building services business use one?
– An RCF is an agreed borrow/repay limit you can draw against as needed, and it’s ideal for ongoing material purchases, payroll and smoothing seasonal cashflow where interest is charged only on amounts drawn.

4. Can retentions and stage payments be funded by invoice finance?
– Often retentions are excluded from standard invoice finance products, though some providers offer separate retention funding — always confirm eligibility with the lender or broker.

5. Will invoice finance affect my customer relationships?
– It can: disclosed factoring notifies customers and hands collections to the provider, whereas confidential invoice discounting preserves the customer relationship.

6. How quickly can I access funds with invoice finance versus a revolving credit facility?
– Invoice finance can advance funds within 24–72 hours once set up, while arranging an RCF may take days to weeks for approval and security, although redraws are instant once approved.

7. Will lenders require security or personal guarantees for these facilities?
– It depends on product and size: invoice finance providers usually take a charge over receivables, while RCFs often require asset security or personal guarantees for larger limits.

8. What documents do I need to prepare before applying for invoice finance or an RCF?
– Prepare an aged debtor report, copies of major invoices, signed subcontracts/POs, recent management accounts and a short cashflow forecast covering the next 3 months.

9. Can my business use both invoice financing and a revolving credit facility at the same time?
– Yes — many building services firms combine an RCF for short‑term peaks with invoice finance to unlock large receivables, and a broker can structure a blended solution.

10. Is submitting an enquiry via UK Business Loans an application and will it affect my credit score?
– No — the enquiry is a free eligibility check and introducer request to match you with lenders/brokers (it is not a loan application and submitting it won’t affect your credit score).