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Invoice finance explained.
Invoice finance lets a business raise cash against invoices it has already issued but not yet been paid for. This is a general explainer of a finance type Credicorp Limited does not offer. It is here so directors can weigh it against the options Credicorp does provide.
First, a clear note
Credicorp Limited does not provide invoice finance, factoring or invoice discounting. This guide is educational: it explains how the product works in the wider market so that, if you are weighing your options, you can compare it fairly with a short bridge or a revolving facility. We have kept the tone even and have not steered you toward any product. Where you want to see what Credicorp does offer, that is on the products page.
What invoice finance is
Borrowing against money you are already owed, rather than against a future event.
When a business sells on credit terms, it issues an invoice and waits — often 30, 60 or 90 days — to be paid. Invoice finance turns that waiting period into cash now. A finance provider advances a percentage of the invoice value, commonly somewhere around 70% to 90%, as soon as the invoice is raised. When the customer eventually pays, the provider releases the remaining balance, less its charges. The two main charges are a service fee (a percentage of turnover, for running the facility) and a discount charge (interest-like, on the funds advanced).
It is a financing of the sales ledger — the book of money owed to the business. That makes it fundamentally different from a bridge, which finances a specific upcoming gap, and different again from spreading a supplier bill, which works on money the business owes rather than money it is owed.
Factoring against discounting
The two main forms of invoice finance differ mainly in who collects the money and whether the customer knows.
| Factoring | Invoice discounting | |
|---|---|---|
| Who chases payment | The finance provider | The business itself |
| Customer awareness | Usually disclosed to the customer | Usually confidential |
| Credit control | Outsourced to the provider | Kept in-house |
| Typically suits | Smaller firms wanting the admin handled | Larger firms with their own credit-control team |
A further distinction is recourse versus non-recourse. With recourse, the business carries the risk if a customer never pays; with non-recourse, the provider takes some of that risk, usually for a higher fee. Two more terms worth knowing are whole-turnover (the whole ledger is financed) versus selective or spot finance (single invoices). Definitions for these sit in our glossary.
How it compares to a short bridge
Two ways to handle a timing gap, with different mechanics, commitments and costs.
| Invoice finance | Short business bridge | |
|---|---|---|
| What it is secured on | Your unpaid sales invoices | Nothing taken as security; repaid from a known source |
| Commitment | Often an ongoing facility with notice periods | A single, short, fixed-term advance |
| Cost shape | Service fee plus a discount charge | A daily rate on the amount, plus a one-time fee |
| Needs a sales ledger | Yes — you must invoice on credit terms | No |
| Best when | Slow-paying customers are a constant feature | A one-off, visible gap needs covering |
If your problem is structural — you always wait two months to be paid — invoice finance addresses the pattern. If the problem is a single, dated gap, a short bridge may be simpler and carry no ongoing commitment. To size the gap either way, the working capital gap calculator is a useful starting point.
Who invoice finance suits
- Businesses that sell on credit terms. You need a sales ledger of invoices to other businesses for it to work at all.
- Firms with reliable, creditworthy customers. The provider is, in effect, lending against your customers' ability to pay.
- Companies growing faster than their cash. As sales rise, the funding available rises with the ledger.
It tends to suit less well where invoices are few and large, where customers are consumers rather than businesses, or where the admin and notice-period commitments outweigh the benefit of early cash. For a wider map of the choices, see our UK SME funding landscape article and the related guide on asset finance.
What to check before committing
Invoice finance is usually an ongoing facility rather than a one-off, so the small print matters more than with a short advance.
- The all-in cost. Add the service fee and the discount charge together, and work out what the facility costs across a typical month — not just the headline percentage.
- Notice periods and minimum terms. Many facilities run on a contract with a minimum term and a notice period to exit. Know how, and how quickly, you can leave.
- Concentration limits. A provider may cap how much it will advance against any one customer, which matters if your sales are concentrated on a few big accounts.
- Recourse. Be clear whether you, or the provider, carry the loss if a financed customer never pays.
- Customer awareness. Factoring is usually disclosed to your customers; discounting is usually confidential. Decide which you are comfortable with.
None of this is a reason for or against the product — it is the diligence any director should do before signing. Our borrower due-diligence checklist sets out the same discipline for any finance offer, and the glossary defines the terms used above.
Where to go next
- Business bridging loans explained — the short-bridge comparison
- Asset finance explained — another option Credicorp does not offer
- Merchant cash advances explained
- Working capital gap calculator
- What Credicorp does offer
- Glossary of the terms used here