Accounts receivable financing lets a UK limited company draw cash against unpaid business invoices, usually 80% to 90% of their value, rather than waiting 30 to 90 days to be paid. UK lenders call it invoice finance, and they charge a service fee plus a discount charge that works like interest.

What invoice finance costs depends mostly on how long your customers take to pay, not on the headline rate. On a £10,000 invoice with 85% advanced, the discount charge is about £40.17 if your customer pays in 30 days and about £120.51 if they take 90.

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What accounts receivable financing is, and what UK lenders call it

Accounts receivable financing is any arrangement where a lender advances you cash against invoices you've already issued to other businesses but haven't been paid for. In the UK it is almost always sold as invoice finance, and what you can draw is based on the value of those invoices.

You'll see the same thing called receivables finance, receivables lending, or an accounts receivable loan. They all describe funding raised against your sales ledger, which is the list of money your customers owe you. If you want the bookkeeping side, we cover the difference between accounts receivable and accounts payable separately.

The problem it exists to solve is a timing one. You've delivered the work and sent the bill, and now there's a month or two of nothing. If no payment date is agreed, a business payment is late 30 days after your customer gets the invoice, and agreed terms are usually within 60 days (late commercial payments on GOV.UK). Meanwhile payroll, your suppliers, and your VAT bill all arrive on their own schedule. Financing your receivables moves the cash forward; it doesn't make your customers pay faster. For that, chasing unpaid invoices properly often does more.

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Factoring sells the invoice, invoice discounting lends against it

Factoring is a sale: the provider buys the invoice and collects it. Invoice discounting and receivables-backed lending are borrowing secured on your sales ledger, and the money you draw carries a charge that works like interest. How your accountant presents it in your accounts depends on the agreement.

That distinction matters because of what it does to your obligations. If you've sold the invoice outright on a non-recourse basis, the provider carries the loss when your customer doesn't pay. If you've borrowed against it, you still owe the money. Most UK facilities sit closer to the borrowing end than the name 'factoring' suggests, which is why the recourse clause is the first thing to read.

The British Business Bank describes invoice finance pricing as 'a service fee (a percentage of the value of each invoice), and a discount charge (like interest) based on the amount of funds it utilises' (British Business Bank, invoice finance, checked on 13 October 2026). So the idea that receivables financing has no interest cost because it isn't a loan doesn't hold. Ask your accountant how a particular facility should be presented in your accounts, because it depends on the agreement rather than the product name.

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How accounts receivable financing works, step by step

Once a facility is in place, you raise an invoice as usual, upload it to your provider, and draw 80% to 90% of its value, usually within 24 to 48 hours. When your customer pays, the provider releases the balance, minus its fees. Setting the facility up first takes longer.

The 24 to 48 hours applies to a drawdown against an invoice, not to a first application. Xero puts set-up at one to two weeks, with drawdowns landing within one business day after that (Xero, accounts receivable financing, checked on 13 October 2026), and some bank facilities take longer again. If your gap is this week, a facility you haven't set up yet won't close it.

1. Get the facility agreed. The provider reviews your business, your customers, and your sales ledger, then sets your advance rate, your fees, and your limits. Expect one to two weeks at the quickest.
2. Invoice your customer as normal. The goods or services have to be delivered and undisputed. Work in progress and retentions are usually excluded.
3. Upload the invoice. By hand, or automatically from your accounting software.
4. Draw the advance. You can take 80% to 90% of the invoice value, usually within 24 to 48 hours.
5. Collection. With factoring the provider chases your customer. With invoice discounting you carry on chasing, and your customer pays into an account in your company's name.
6. The balance is released. Once your customer pays, the provider sends you the rest, less its service fee and the discount charge for the days you were funded.

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The three types you'll be offered: factoring, invoice discounting and selective finance

UK providers offer three: invoice factoring, where they run collections; invoice discounting, where you keep them; and selective or spot finance, where you fund chosen invoices rather than your whole ledger. Which suits you turns on your size, your credit control, and whether you want your customers involved.

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Invoice factoring

With invoice factoring, the provider advances against your invoices and takes over credit control. Your customers are told, and they pay the provider directly.

It tends to suit smaller or faster-growing companies without a credit controller of their own, because you're buying a collections service as well as the funding. That's also why its service fee sits at the top of the range.

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Invoice discounting

With invoice discounting, you get the same advance but keep your own credit control, and the arrangement is usually confidential. Your customers keep paying you, into a designated account in your company's name, and generally never know a lender is involved.

Providers reserve it for established companies with a finance function that already collects reliably, because the provider is relying on your processes rather than its own.

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Selective invoice finance and spot factoring

Selective invoice finance funds invoices you choose rather than your whole ledger, which is useful when one large invoice on long terms is the whole problem. You pay per invoice, usually 2% to 5% of its value for every 30 days it stays funded, so it costs more per invoice but commits you to nothing ongoing.

The British Business Bank draws a line the market often blurs: selective invoice finance funds selected customer accounts, while spot factoring funds individual invoices. In practice providers use both names loosely, so read who gets notified, who collects, and what you're committing to.

Forfaiting is a fourth option, but it's for exporters selling capital goods on long credit terms rather than for a normal UK sales ledger.

(Sources: British Business Bank for advance rates and the factoring and discounting split; Merchant Savvy, selective invoice finance for selective pricing and contract lengths. Both checked on 13 October 2026.)

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Whether your customers find out depends on the type you choose

With invoice factoring your customers are told, because they pay the provider directly. With confidential invoice discounting they usually aren't: they keep paying into an account in your company's name, and you carry on chasing. Selective deals can go either way, so ask before you sign.

This worries directors more than the cost does, and the worry is reasonable: a customer who learns you've sold their invoice may read something into it. In practice, factoring is normal in construction, recruitment, and haulage, and large buyers deal with factored invoices every day. The British Business Bank notes that many invoice discounting facilities are undisclosed, so your customers won't be aware you're using one.

If confidentiality is the deciding factor, say so at the quote stage. It will steer you towards invoice discounting, which in turn means meeting a higher turnover threshold.

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What a provider asks for in return

Most providers register a charge over your sales ledger at Companies House, and many ask a director for a personal guarantee. They also cap how much of your ledger a single customer can make up, and a disputed invoice usually comes straight back out of your available cash.

These are the terms that change the decision, so read them before the rate:

• A charge over your receivables. It's registered at Companies House, so it's public, and it can make other borrowing harder to arrange without the first lender's agreement.
• A director's personal guarantee. Some providers ask for one. A guarantee makes that director personally liable if the company can't repay, so it's worth taking advice before signing.
• A debtor concentration cap. If one customer makes up more than roughly 30% to 50% of your ledger, many providers won't fund the excess, which can cut the cash you were counting on.
• Disputed invoices. If a customer disputes delivery or quality, providers normally pull that invoice out of the facility and reduce your available balance by the amount already advanced.
• An audit. Expect the provider to inspect your ledger periodically, and to charge you for it.

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What accounts receivable financing costs

There are two charges. A service fee of roughly 0.5% to 3% of each invoice's value covers the admin and, with factoring, the collections. A discount charge, which works like interest on the money you've drawn, usually runs at the Bank of England base rate plus 1.5% to 3.5%.

The base rate has been 3.75% since 18 December 2025 (Bank of England, official Bank Rate history, checked on 13 October 2026), which puts a typical discount charge somewhere in the region of 5.25% to 7.25% a year on the money you've actually drawn, charged daily.

You'll get a quote rather than a price list, and that's worth knowing before you start asking. The British Business Bank, UK Finance, and Invest NI all describe this charge structure, and none of them publishes a rate. Most UK providers don't publish one either, including Aldermore, Bibby, Close Brothers, IGF, Novuna, Skipton, and Ultimate Finance. Every figure below is market data from comparison sites, with its date, rather than an official rate.

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A worked example on a £10,000 invoice

On a £10,000 invoice with 85% advanced, you'd get £8,500 within a day or two and the remaining £1,500 when your customer pays, less the fees. At a service charge of 1% and a discount charge of 5.75% a year, a customer who pays in 45 days costs you about £160.26 in total.

The discount charge is the part you can influence, because it runs for as long as the invoice is unpaid:

So a customer who drifts from 30 days to 90 triples what the money costs you, on the same invoice at the same rate. If you have one customer who always pays late, that's where your facility's cost is going.

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The cost falls as your turnover grows

Invoice finance costs proportionally less as you grow, because the service fee is negotiated against your turnover. Market data for 2026 puts the all-in cost at 3.5% to 8% of turnover for a business turning over £100,000, and 1.2% to 3% for one at £3 million. Sector matters too.

Sector changes the service charge as much as size does. Market Invoice puts recruitment at 0.75% to 2%, transport at 0.75% to 1.5%, manufacturing at 1% to 2%, and construction and export both at 1.5% to 3%. The pattern is that clean, undisputed invoices to creditworthy customers cost less to fund, which is why construction, with its retentions and staged payments, sits at the top.

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The fees that don't show in the headline rate

Beyond the two main charges, expect a one-off arrangement fee, an annual audit fee, and charges for same-day transfers. Facilities can also carry a minimum monthly charge, and leaving early usually costs three to six months of service charge. Ask for all of them in writing before you sign.

• Arrangement fee: £250 to £5,000 as a one-off, depending on the size of the facility. Selective deals are cheaper to set up, at £100 to £500.
• Audit fee: £500 to £1,500 a year for the provider to inspect your sales ledger.
• Bad debt protection: 0.3% to 1% of each invoice, if you add it.
• Same-day transfer: £15 to £30 each time you need the money today rather than tomorrow.
• Minimum monthly charge: some facilities bill a floor whether you draw or not, which bites in a quiet month.
• Early termination: typically three to six months of service charge if you leave before the notice period ends.

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Who qualifies, and the minimum turnover for each type

Invoice finance is for businesses that invoice other businesses on credit terms, so consumer invoices don't qualify. Whole-ledger facilities generally aren't suitable below £300,000 of annual turnover, while selective deals have little or no minimum. Providers assess your customers' credit as well as your own.

Two limits catch people out. The British Business Bank says whole-ledger invoice finance is 'not suitable for businesses with annual turnover of less than £300,000', and that where it takes longer than 90 days for your customers to pay, some providers may decline your application altogether. The thresholds also come from different sources using different measures, some turnover and some sales, so treat them as a guide to who each product is built for rather than a pass mark.

Because the provider is lending against your customers' obligations, their credit matters as much as yours. That can work in your favour if your own trading record is short but you sell to strong businesses. It works against you if your biggest customer is the weak link.

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If your customer doesn't pay, recourse decides who takes the loss

With recourse finance, which is the standard arrangement, the provider can reclaim the advance from you if your customer doesn't pay, usually once the invoice is 90 to 120 days old. Non-recourse adds bad debt protection, costing roughly 0.3% to 1% of each invoice.

Invest NI puts recourse plainly: the factor is 'able to reclaim their money from you even if the customer does not pay'. With non-recourse, the provider takes the bad debt risk instead, but it 'does not insure against debts which are unpaid because of genuine disputes'.

The exclusion matters more than it sounds. Bad debt protection covers a customer who becomes insolvent. It doesn't cover a customer who refuses to pay because they say the work was wrong, which in a lot of sectors is the likelier problem.

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Where accounts receivable financing works well, and where it doesn't

Invoice finance works well when you invoice other businesses regularly on long terms and want funding that grows with your sales. It works less well for a one-off gap, for lumpy or low invoice volumes, or where one customer makes up most of your ledger.

It's likely to fit if:

• You invoice other businesses every month and wait weeks to be paid.
• Your funding need rises as your sales rise, so a fixed limit would keep running out.
• You'd rather hand collections to someone else, or you already run them well enough to keep them.
• Your turnover is comfortably above the threshold for the type you want.

It's less likely to fit if:

• The gap is a one-off, such as a single late payment or a tax bill, and you don't want a facility and a charge over your ledger for it.
• You raise a few large invoices a year rather than a steady flow.
• One customer makes up most of your sales, so the concentration cap limits what you can draw.
• You need the cash this week and don't have a facility yet.
• You sell mainly to consumers, so you have few business invoices to fund.

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Other ways to cover the wait for a customer to pay

iwoca doesn't offer invoice finance, invoice factoring, or invoice discounting. If your cash flow gap is the wait between invoicing and getting paid, the realistic options are an invoice finance facility, a business loan to cover the gap, a business overdraft, or being paid up front through a business payments service.

Market providers of invoice finance in the UK include high street banks, challenger banks, and specialist independents such as Aldermore, Bibby Financial Services, Close Brothers, Novuna, Skipton Business Finance, and Ultimate Finance. A broker can compare them, and the questions worth asking every one are the same: what's the advance rate, what are both charges, how long is the contract, what does leaving cost, and is it recourse or not.

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Covering the gap with a business loan while you wait to be paid

If the problem is one invoice on 60-day terms and a payroll run that lands first, a business loan covers the gap without a charge over your ledger and without involving your customer. An iwoca Flexi-Loan is a business loan with flexible repayment options, for UK limited companies.

The situation it's built for is narrow and common. You've invoiced, you know roughly when the money lands, and something else is due first. Victoria Simpson, founder of VCare24, has that gap every month: local authorities take 30 to 60 days to pay her, and 200 staff need paying monthly. She draws on iwoca to bridge it.

'It might be just a two or three day gap. But when you've got payroll running at that level, two or three days matters.' Victoria Simpson, founder, VCare Group

What makes a loan workable for a wait rather than a permanent funding need is how the interest is charged. With a Flexi-Loan, we only charge interest for the days you borrow, and there's no charge for repaying early, so a loan you clear the week your customer pays costs less than the same loan run to term. A decision comes within 24 hours.

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Getting paid as your customer checks out, with iwocaPay

iwocaPay is iwoca's business payments service: you add a pay link to your invoice, and you're paid as soon as your customer is approved while they pay later. iwoca takes on the credit risk, so if your customer doesn't pay us, we don't come to you for the money.

The credit risk is the real difference from invoice finance. A standard recourse facility hands the loss back to you if your customer doesn't pay. With iwocaPay, we say plainly that there's no recourse to you. Your customer can spend up to £30,000, and they choose at checkout whether to pay now by bank transfer or to spread the cost. Either way the money reaches you.

It doesn't fit every sale. Your customer has to be willing to pay through the link, and a finance team that only pays by bank transfer against a matched purchase order may stick to its usual terms. It also works invoice by invoice rather than funding your whole ledger, so if you want a facility that scales automatically with your sales, invoice finance does that and iwocaPay doesn't.

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Accounts receivable financing FAQs

Is accounts receivable financing the same as invoice factoring?

Invoice factoring is one type of accounts receivable financing, not the whole of it. Factoring means the provider buys your invoices and chases your customers; accounts receivable financing also covers invoice discounting and selective finance, where you keep collections.

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Can I finance a single invoice rather than my whole sales ledger?

You can, through selective invoice finance or spot factoring. You pick the invoices you want funded and pay per invoice rather than committing your whole ledger, which costs more per invoice but ties you to nothing ongoing.

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What's the difference between receivables finance and accounts receivable?

Accounts receivable is the money your customers owe you, which sits on your balance sheet. Receivables finance, or receivables lending, is the funding you raise against it. The words look alike, but one is the asset and the other is the borrowing.

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Does iwoca offer invoice finance?

iwoca doesn't offer invoice finance, invoice factoring, or invoice discounting. For a cash flow gap while you wait to be paid, iwoca offers a business loan with flexible repayment options, and iwocaPay for getting paid as your customer checks out.