Invoice Finance (UK) — Do You Need a Contract, Minimum Term or Will You Pay Exit Fees?

Short answer: Most invoice finance facilities are provided under a written agreement and can include notice periods, initial commitments and sometimes exit or administration charges. Exact terms vary by provider and by product (factoring vs invoice discounting). UK Business Loans doesn’t lend — we match businesses (from about £10,000 borrowing needs upwards) with lenders and brokers who will set out the facility terms so you can compare. Ready to compare options? Get Quote Now — Free Eligibility Check

Quick answer: contracts, commitments and fees — what to expect

Invoice finance is usually delivered under a formal facility or service agreement between your business and a funder (or via a broker representing a funder). That agreement explains the advance rate, fees, reporting, security, notice periods and any exit or administration charges.

• Contracts: Most providers require a signed facility agreement that sets out the rules and responsibilities.
• Minimum terms: Some facilities have an initial minimum commitment (commonly 3–12 months) or minimum notice periods (30–90 days); others run on a rolling basis.
• Exit / early termination charges: Some lenders charge a named exit fee or recover onboarding/setup costs; others may only charge an administration cost on closure. It depends on the provider.
• UK Business Loans role: We introduce you to lenders and brokers who will disclose full terms. We don’t lend money; we match businesses to suitable providers so you can get fully costed paperwork to review.

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How invoice finance works — brief overview

Invoice finance unlocks cash tied up in unpaid invoices so your business can access working capital quickly. Two main models are common:

• Factoring: The funder typically manages your sales ledger and collects payments from customers. Because the funder takes control of collections there are often stronger covenants, clearer client notification clauses and, sometimes, more involved exit procedures.
• Invoice discounting: Your business keeps control of collections (confidential to customers). Discounting can be less intrusive day-to-day but still requires clear reporting and security arrangements.

Both models usually require a formal agreement so the funder can define advance rates, reserves, fees, credit terms with your customers and the process for returning reserve funds after invoices are collected. If you’d like personalised comparisons, start your enquiry.

Typical terms and clauses in invoice finance agreements

Lenders set out terms in a facility agreement or service agreement. The following are the common clauses you should expect to see and check carefully.

Parties & facility type

The agreement names the parties, the facility type (factoring or discounting) and how customers will be notified (if at all). It will also detail whether the agreement is recourse (you remain liable if a customer doesn’t pay) or non‑recourse (funder absorbs credit risk subject to eligibility rules).

Facility limit, advance rate and discounting fee

• Facility limit: The maximum value of invoices the funder will finance.
• Advance rate: Percentage advanced up front (e.g. 70–90% depending on sector and debtor quality).
• Discount margin / fees: Ongoing charge often shown as a percentage of invoice value plus fixed administration or service fees (weekly/monthly).

Minimum terms, initial commitment periods & notice periods

Examples range from rolling facilities with 30 days’ notice to initial terms of 6–12 months where early termination may carry a charge. The agreement should state the notice required to close and whether the contract converts to rolling after an initial term.

Termination and exit provisions

These clauses describe how to close the facility, how reserves and client monies are handled, timescales for final accounting, and any exit or administration charges. Some providers apply one-off exit fees or recover set-up costs; others only charge for actual administration time.

Security and guarantees

Lenders may take security such as a debenture, fixed charge over receivables or require director guarantees. The agreement should list all securities and registration steps (e.g. Companies House filings).

Reporting, covenants and controls

You’ll usually be required to provide sales ledger ageing reports, bank statements and to comply with covenants (turnover targets, debtor credit quality). Breach of covenants can accelerate termination and increase costs.

Transfer and assignment

Most agreements allow the lender to transfer the facility to another funder. The contract should explain how customers and reserve funds are handled on transfer.

Tip: Always ask for a clear fee schedule and a worked example showing the total cost over typical periods and for early closure. If you want to compare typical terms from multiple providers, get a free quote.

Are early termination or exit fees common?

Short answer: sometimes. Whether you’ll pay an exit fee depends on several factors.

• Type of facility: Factoring tends to have stricter terms and may include early termination fees; invoice discounting can be more flexible but is not guaranteed to be free on exit.
• Lender policy: Larger banks or specialist providers may recover set‑up and legal costs or charge an administration fee on closure. Some funders advertise “no exit fee” offers but may still charge final administration costs.
• Nature of termination: Consensual closures at the end of a term are less likely to trigger heavy charges than forced terminations after covenant breaches, which often carry recovery costs.
• Other closure costs: Rather than a named “exit fee” you may see charges for final audit/administration, legal fees, account reconciliation or recovery of onboarding costs (e.g. credit checks, legal docs).

Practical recommendation: before you sign, ask for a “worst-case” illustration showing the cost to exit at 1, 3, 6 and 12 months. That reveals the true economics and allows realistic comparison. If you want brokers to request “no exit fee” or short notice periods on your behalf, get a free eligibility check.

How UK Business Loans helps you avoid surprises

UK Business Loans connects your business with lenders and specialist brokers who can provide invoice finance quotes and full facility paperwork. Our service is free to use and designed to save you time:

1. Complete a short enquiry (under 2 minutes) and tell us your funding need (minimum typically £10,000).
2. We match you with appropriate lenders/brokers experienced in your sector.
3. You receive comparisons and full terms so you can review fees, notice periods and exit charges before committing.

We encourage you to request the full facility agreement or Key Facts summary from any funder and to ask for worked exit examples. If you’re ready to compare tailored offers, Get Quote Now — Free Eligibility Check.

Before you sign: essential questions to ask any invoice finance provider

Use this checklist when you review offers or speak to a broker:

• Can I see the written facility agreement and a plain-English summary?
• Is there an initial minimum term or does the facility run on rolling notice? How long is the notice period?
• Are there early termination or exit fees? Exactly how are they calculated?
• What are the advance rates, discount margin and frequency of charges?
• Which setup, administration or audit fees apply — and are any refundable on early exit?
• What security is required? Will a debenture or director guarantee be requested?
• How are client/reserve funds returned on exit or transfer to another lender?
• Is the facility recourse or non-recourse, and how are customer defaults handled?
• Can the facility be transferred to another lender and how will customers be notified?
• Can I have a worked example of monthly costs and a final exit illustration?

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Realistic examples — what an agreement might look like

These short scenarios are illustrative only — actual terms vary by lender.

Scenario A — Invoice discounting (manufacturer)
Rolling facility with 30 days’ notice. Advance rate 85%, discount margin 0.8% per month, weekly administration fee. No named exit fee but a final administration charge of £350 on closure. Reserve released after final reconciliation.

Scenario B — Factoring (services firm)
12‑month initial term, 60 days’ notice thereafter. Advance rate 75%, monthly discount charge 1.2% and an early termination fee equal to one month’s discount charge if closed during the initial term. Lender takes a debenture and asks for a director guarantee.

These examples show how structure affects cost and obligations. Want tailored examples for your business? Get a free eligibility check.

Compliance and consumer protection — what to check

When you receive a quote, ask the lender or broker for a Key Facts or fee schedule and full written terms. Make sure you understand:

• All fees (including administration, audit and exit costs) in writing.
• How reserves and client monies will be held and returned.
• Security being taken and any Companies House registrations.
• How customer communications are handled if factoring is used.

If anything is unclear, ask your broker or the lender for a worked example before signing. If you want help sourcing providers who can show detailed exit-cost examples, start your enquiry.

Frequently asked questions — contracts, notice periods and exit fees

Does invoice finance always need a signed contract?

Usually yes. Funders use a written facility or service agreement to set out advance rates, fees, covenants, reporting and security. The paperwork protects both parties and clarifies exit arrangements.

Are there minimum commitment periods?

Sometimes. Some providers require an initial term (commonly 3–12 months) or set minimum notice periods (30–90 days). Other facilities are rolling with short notice. It depends on the product and credit risk.

Will I pay an early termination fee if I close early?

It can happen. Some lenders charge a named exit fee or recover set‑up/legal costs. Others charge only for actual administration. Always request a written fee schedule and a worked exit example.

Can I change lender without losing customers?

Yes — a transfer clause in the contract will normally govern how customers and reserve funds are handled. Transfers require careful coordination so customer relationships aren’t disrupted.

Does submitting an enquiry via UK Business Loans affect my credit score?

No. Submitting a quick enquiry to be matched with lenders/brokers does not affect your credit score. Lenders may carry out credit checks later if you proceed with an application.

How long until I get full terms?

You’ll often hear from a broker or lender within hours. Full, costed terms and facility paperwork are typically produced after initial due diligence and will be provided for your review prior to signing.

Still unsure? Get a free quote

Ready to check your options?

Complete our short enquiry (takes under two minutes) to be matched with lenders and brokers who can provide fully costed invoice finance quotes and full contract paperwork for review. No obligation — just clear comparisons so you can choose the right solution for your business needs (from around £10,000 upwards).

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invoice finance

1. What is invoice finance and how does invoice finance in the UK work?
Invoice finance lets your business unlock cash tied up in unpaid invoices by selling or assigning those invoices to a funder (factoring) or borrowing against them (invoice discounting) under a formal facility agreement.

2. Do I need a written contract for invoice finance?
Yes — most UK invoice finance providers require a signed facility or service agreement that sets out advance rates, fees, reporting, security and exit terms.

3. Are there minimum terms or notice periods for invoice finance facilities?
Some facilities have initial minimum terms (commonly 3–12 months) or notice periods of 30–90 days, while others run on rolling notice—always check the written clause.

4. Will I be charged exit fees or early termination costs if I close an invoice finance facility?
Exit fees are sometimes charged and providers may also recover setup, legal or final administration costs, so request a written fee schedule and a worked exit example.

5. What’s the difference between factoring and invoice discounting?
Factoring usually involves the funder managing collections and notifying customers, often with stricter covenants, whereas invoice discounting keeps collections confidential and under your control.

6. How much funding can I get and what are typical advance rates?
Facility limits vary by provider and debtor quality, with typical advance rates ranging from about 70–90% of invoice value depending on sector and credit risk.

7. What security or guarantees do invoice finance providers typically require?
Lenders may take security such as a debenture, fixed charge over receivables and sometimes director guarantees, all of which should be detailed in the agreement and Companies House filings.

8. Can I transfer my invoice finance facility to another lender without losing customers?
Yes — most contracts include transfer and assignment clauses that govern how customers and reserve funds are handled, but transfers require careful coordination to avoid disruption.

9. Does submitting an enquiry via UK Business Loans count as an application or affect my credit score?
No — the short enquiry is just to match you with suitable lenders and brokers, it isn’t an application and does not affect your credit score (lenders may carry out checks later).

10. How quickly will I receive quotes and full facility paperwork after enquiring?
You’ll often hear from brokers or lenders within hours and can expect full, costed terms and facility paperwork after initial due diligence so you can review before signing.