How invoice finance can support your business

Written by Aaron Sanderson from Avante Financial

Introduction

Cash flow is the lifeblood of any business.

However, waiting 30, 60, or even 90 days for customers to pay invoices can create significant cash flow challenges, making it harder to cover operational costs, pay suppliers, or invest in growth.

Invoice finance provides a solution by allowing businesses to access a percentage of their unpaid invoices upfront, improving cash flow and maintaining financial stability.

This guide explores how invoice finance works, its benefits, and how businesses can use it effectively.

1 What is invoice finance?

Invoice finance is a type of funding that allows businesses to unlock cash tied up in unpaid invoices.

Instead of waiting for customers to pay, businesses receive an advance (typically 70-90 per cent) of the invoice value from a lender.

Once the customer pays, the remaining balance (minus lender fees) is released.

Invoice finance is commonly used by businesses that:

• Offer credit terms to customers (e.g., 30 to 90-day payment terms).
• Experience cash flow gaps due to slow-paying clients.
• Need working capital for growth or day-to-day operations.

2 How does invoice finance work?

The process of invoice finance typically follows these steps:

1️ Business raises an invoice – The invoice is sent to the customer as usual.

2 Submit the invoice to the finance provider – The lender advances a percentage of the invoice value (e.g., 80 per cent).

3️ Customer pays the invoice – The customer pays on their normal credit terms.

4️ Lender releases the remaining balance – The remaining funds (minus fees) are paid to the business.

This enables businesses to access funds immediately, rather than waiting weeks or months for payment.

3 Types of invoice finance

There are two main types of invoice finance:

A Invoice factoring

• The finance provider advances funds and takes responsibility for collecting customer payments.
• Suitable for businesses that want to outsource credit control.
• The lender communicates directly with customers, which may impact client relationships.

B Invoice discounting

• The business retains control of customer payments, and the lender remains in the background.
• Suitable for businesses that want a confidential funding solution.
• Customers are unaware of the finance arrangement.

💡 Tip: Invoice discounting is often preferred by larger or more established businesses with strong credit control systems.

4 Key benefits of invoice finance

Invoice finance offers several advantages for businesses, including:

Improved Cash Flow – Allows businesses to access working capital immediately rather than waiting for payments.

Flexible Funding – The amount of finance available grows in line with sales.

No Need for Additional Security – The invoices act as collateral, reducing reliance on other business assets.

Better Supplier Relationships – With improved cash flow, businesses can pay suppliers on time and even negotiate better terms.

Supports Growth – Enables businesses to take on larger orders and expand operations without cash flow restrictions.

5 Considerations before using invoice finance

Cost – Lenders charge fees based on a percentage of invoice value, so businesses must factor in the cost.

Customer creditworthiness – The amount advanced depends on the reliability of customers to pay their invoices.

Impact on client relationships – Factoring involves direct lender-customer interaction, which some businesses prefer to avoid.

6 Finding the right invoice finance solution

There are many invoice finance providers, each offering different rates, terms, and levels of service. Choosing the right one depends on:

• • The volume and value of invoices issued.
  • Whether control of credit management is retained or outsourced.
  • The cost of the facility and repayment structure.

A commercial finance broker can help businesses compare options and find the most suitable and cost-effective invoice finance provider based on their needs.

Conclusion

Invoice finance provides a fast and flexible funding solution for businesses looking to improve cash flow and maintain steady operations.

By unlocking cash tied up in unpaid invoices, businesses can pay suppliers, manage operational costs, and invest in growth without waiting for customers to settle accounts.

Businesses considering invoice finance should carefully compare providers and terms to ensure they choose the right solution for their needs.