Can a growing SME access cash tied up in outstanding invoices without changing customers’ payment terms?

Short answer: Yes — many growing SMEs can unlock cash tied up in unpaid invoices using invoice finance without altering the payment terms their customers see. Confidential invoice discounting keeps customers unaware; disclosed factoring informs them but does not change the invoice amounts or due dates. Below you’ll find how each option works, costs, legal points to check, examples and how UK Business Loans can quickly match you to lenders and brokers.

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How invoice finance lets SMEs unlock cash without changing customer payment terms

Invoice finance uses outstanding invoices as the basis for immediate working capital. Crucially, using invoice finance does not usually require changing the numbers or due dates on your invoices — instead the invoices are used as security or assigned to a funder.

There are two core ways this happens:

• Disclosed factoring: a factor buys or advances against invoices and typically collects payments from customers. Customers are notified that payments should be made to the factor — but the commercial payment terms (amounts and dates) remain the same.
• Confidential invoice discounting: the facility is undisclosed and your business continues to invoice and collect in the normal way. Customers are usually unaware of the funding arrangement.

Neither model normally requires you to renegotiate payment terms. Lenders and brokers will perform due diligence and may verify invoices with customers during setup, but that is not the same as changing the contractual payment terms.

Types of invoice funding explained

Disclosed factoring

With factoring a specialist funder or factor provides an immediate advance (commonly 70–90% of invoice value). The factor usually takes responsibility for collections and credit control.

• Customer notified: yes (notification letter)
• Collections: usually handled by the factor
• Advance rate: typically 70–90%
• Best for: businesses happy to outsource collections and improve cash flow quickly

Confidential invoice discounting (undisclosed)

Invoice discounting is confidential. The business retains control of credit control and collections; customers continue to pay you as normal.

• Customer notified: usually no
• Collections: your business continues to collect
• Advance rate: typically 80–95% for eligible invoices
• Best for: established businesses that want to keep funding confidential

Selective (spot) invoice finance

Selective or spot finance lets you finance individual invoices only. This is useful for one-off projects, seasonal peaks or sensitive customers where you want to choose which invoices to advance.

Recourse vs non‑recourse

Recourse facilities mean the business remains liable if a customer fails to pay; non‑recourse transfers some bad‑debt risk to the funder but is typically more expensive and often excludes disputes, insolvency or related-party debts.

There are hybrid facilities too — split or flexible arrangements that combine features to suit specific needs.

Legal & contractual points: assignment, notification and customer terms

Before signing, check contracts and be ready to share them with your broker or lender. Key legal points:

• Assignment of debt: many supplier contracts already permit assignment. If a contract prohibits assignment the lender may require customer consent or use conditional assignment techniques.
• Notification: disclosed factoring requires customer notification; discounting usually does not, but lenders may contact customers to verify invoices.
• Contract clauses to watch: anti-assignment clauses, confidentiality obligations, retention of title and set-off rights may complicate funding.

Practical steps: review major customer contracts early, tell your broker about complex clauses and consider selective finance where customers are sensitive to third-party involvement.

Typical costs, advance rates and examples

Invoice finance costs vary by sector, customer credit quality and facility size. Typical cost components include:

• Arrangement/setup fee (one-off)
• Monthly facility or account fee
• Discount rate or interest on advanced funds (charged on the outstanding advanced balance)
• Administration and collection fees (if the funder collects)

Advance rates: 70–95% depending on type and client creditworthiness. When an invoice pays the remaining balance is released to you minus fees (the “reserve” or holdback).

Example (anonymised): A growing SME with £200,000 in eligible invoices uses confidential invoice discounting at an 80% advance. Immediate cash = £160,000. When customers pay the remaining £40,000 is released less fees. The SME uses the cash to hire staff and buy materials, avoiding equity dilution and avoiding renegotiating payment terms with clients.

Who is suitable for invoice finance — benefits & limitations

Invoice finance suits many growth-focused SMEs with substantial invoices to creditworthy customers. Benefits include:

• Fast access to working capital without diluting equity
• Improved cash flow for payroll, stock and growth
• Ability to scale quickly and meet large supplier demands
• Facilities can often sit alongside bank lending

Limitations:

• Costs can be higher for low-margin businesses
• Small or irregular invoices may be uneconomic
• Customers with poor credit reduce advance rates
• Some contracts may block assignment

Sectors commonly using invoice finance include construction, logistics, manufacturing, wholesale and many project-based professional services.

Alternatives and when to consider them

If invoice finance is not right, consider:

• Asset finance for equipment and vehicles
• Term business loans for predictable medium-term funding
• Overdrafts for short, flexible gaps
• Supply-chain finance or merchant cash advances where appropriate

Choose alternatives when you need fixed-term capital rather than debtor-backed liquidity, or when you prefer not to use invoices as security.

How UK Business Loans helps you get invoice finance quickly

UK Business Loans does not lend. We match growing SMEs to lenders and brokers who specialise in invoice and business finance.

1. Complete a short enquiry (company details, turnover, funding required) — it takes under 2 minutes.
2. We match you to the most suitable lenders/brokers in our panel based on sector, invoice profile and funding need.
3. You receive a free eligibility check and one or more quotes. Choose to proceed directly with the lender/broker.

Typical information lenders request: company accounts, aged debtor reports, bank statements and details of major customers. Matching is often completed within hours; decisions and funding can follow in days or a few weeks depending on complexity.

Read more about specialist business finance options and how they could fit your plans on our business finance resource hub: business finance.

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Costs-of-action and compliance notes

Consider the costs and contractual effects before proceeding. Facilities include fees and may require notifications to customers depending on the product. UK Business Loans is an introducer and does not provide regulated financial advice or lending. Lenders or brokers will provide full terms and any regulatory disclosures before you commit.

Frequently asked questions

Will invoice finance change how my customers pay?

Often no. Confidential invoice discounting keeps collections unchanged. Disclosed factoring will inform customers that payments should go to the factor, but invoice amounts and due dates remain the same.

Will using invoice finance harm customer relationships?

Not usually — professional notification and careful choice of funder avoid friction. For sensitive relationships choose undisclosed discounting or selective finance.

Can very new businesses use invoice finance?

Newer companies can use invoice finance if they invoice creditworthy customers and can provide supporting documents. In many cases lenders focus on the strength of your customers rather than the age of your business.

Does enquiring affect our credit score?

No — submitting an enquiry with UK Business Loans is a non-credit-search introduction. Lenders or brokers may perform credit checks only if you proceed.

Next steps — get a free eligibility check

If your business needs cash fast but you don’t want to change customer payment terms, invoice finance is often the right solution. To explore options and receive free, no-obligation quotes, complete our quick enquiry and we’ll match you to lenders and brokers best suited to your needs.

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We arrange funding from around £10,000 upwards. Submitting an enquiry to UK Business Loans is free, non‑binding and does not affect your credit score. For full terms and fees, your matched lender or broker will provide detailed documentation.

1. What is invoice finance and how can it help my SME’s cashflow?
Invoice finance (including invoice discounting and factoring) converts unpaid invoices into immediate working capital so you can fund payroll, stock and growth without waiting for customer payments.

2. Will invoice finance change my customers’ payment terms or notify them?
Usually no — confidential invoice discounting keeps customers unaware while disclosed factoring notifies customers but does not alter invoice amounts or due dates.

3. How quickly can I get funds using invoice finance in the UK?
Times vary by complexity, but once due diligence is complete funding can be available from a few days to 2–3 weeks.

4. What are typical costs and advance rates for invoice finance?
Costs include setup fees, monthly facility fees and a discount/interest rate, with typical advance rates from 70–95% depending on product and customer credit quality.

5. Which businesses are best suited to invoice finance?
Invoice finance suits growth-focused SMEs with significant, creditworthy receivables—common in sectors like construction, logistics, manufacturing and wholesale.

6. Can new businesses or those with imperfect credit access invoice finance?
Possibly — many lenders focus on the creditworthiness of your customers rather than the age of your business, though eligibility and terms will vary.

7. What documents will lenders or brokers typically require for an invoice finance facility?
Lenders usually ask for company accounts, aged debtor reports, recent bank statements and copies of major customer contracts to assess eligibility.

8. Does submitting an enquiry with UK Business Loans affect my credit score or commit me to an application?
No — submitting an enquiry is a free, non‑credit-search introduction and is non‑binding, with credit checks only if you progress with a lender or broker.

9. What alternatives should I consider if invoice finance isn’t right for my business?
Consider asset finance, term business loans, overdrafts, supply-chain finance or merchant cash advances depending on whether you need fixed-term capital or debtor-backed liquidity.

10. How does UK Business Loans help me find the right invoice finance or business loan and how long does the matching take?
Complete a short enquiry and UK Business Loans will match you to suitable FCA-regulated lenders and brokers—often within hours—with proposals and funding timelines following in days to a few weeks depending on the facility.