Invoice Financing for Small Businesses

When you run a small business, every penny matters, and every slow invoice can feel like it’s holding you back. Businesses like this stand to gain a lot from invoice factoring, yet they often haven’t been able to find a provider willing work with them.

Fortunately, that’s all starting to change. We’ve selected and reviewed four excellent invoice factoring companies that are happy to work with smaller businesses. Read on to hear our reviews.

What is invoice financing?

Invoice financing is an umbrella term that refers to the method of accessing the funds of unpaid invoices to free up cash flow. It’s kind of like a line of credit. Invoice financing companies take on the task of chasing up invoices, and give you up to 90% of those invoices’ value in the meantime. When they are paid, you get the remaining balance minus a predetermined fee.

Two of the more popular forms of invoice financing are invoice factoring and invoice discounting. These two systems are decently similar to each other, but there are definitely some noteworthy differences:

Invoice Factoring	Invoice Discounting
The factoring firm will communicate with the customer The customer pays the invoice factoring company directly Typically used by smaller companies	Your business still maintains contact with the customer The customer pays your business as usual, and you then pay the company Riskier, so used by larger companies with more credit

How does invoice factoring work?

Invoice factoring is a six step process:

The best invoice factoring companies for small businesses

We’ve compared the best invoice factoring companies around today to give you our top picks for small businesses. Only companies that accept clients with a minimum annual turnover of £50k to £100k made the cut: Ashley Business Finance, Aldermore, Funding Options, and Bibby Financial Services.

Top 4 invoice financing companies for small businesses:

01 | Ashley Business Finance
02 | Aldermore Invoice Finance
03 | Funding Options
04 | Bibby Financial Services

Does your business turn over more than £100k a year? Check out the Top 10 UK invoice factoring companies.

Ashley Business Finance

Best invoice finance for bespoke solutions

Ashley doesn’t just accept small businesses, it welcomes them with open arms. It’s what Ashley’s whole business is based around. It succeeds where many providers fail, even working with small businesses with low credit scores. Ashley’s rates are reasonable, and its ‘confidential’ option means your clients won’t know you’re using a factoring company.

Ashley Finance at a glance:

Advance rate: Up to 90%
Minimum client turnover (approx.): £50k
Discount fee: 1.5-4%
Service fee: 1-3%

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Barista woman smiling by a coffee machine

Invoice factoring helps small businesses access cash that's tied up in unpaid invoices

Aldermore Invoice Finance

Best invoice finance for personalised service

Aldermore is the perfect antidote to the stuffy world of traditional finance. Since its formation in 2009, it has picked up an incredible 22 awards for innovation and service. It approves nine out of 10 applications, and assigns each customer a ‘relationship manager’ for the most personal experience possible. This key feature makes it one of the best invoice financing companies in the UK.

Aldermore invoice discounting stats:

Advance rate: Up to 90%
Minimum client turnover (approx.): £250k
Discount fee: 1.5-3% (negotiable)
Service fee: 0.25-3% (negotiable)

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Aldermore invoice factoring at a glance:

Advance rate: Up to 90%
Minimum client turnover (approx.): £250k
Discount fee: 1.5-3% (negotiable)
Service fee: 0.25-3% (negotiable)

Request a quote >

Funding Options

Best invoice finance for startups

With the backing of the British Business Bank and and a cabinet of industry awards to its name, Funding Options is one of the safest options for businesses that are new to invoice finance. It’s a brokerage that works to match your startup with one of over 50 invoice finance providers in the UK, and is dedicated to making sure you get the best deal. It also comes with fantastic online approval ratings, so you know you’ll be getting some of the friendliest, most customer-focused service on the market.

Funding Options invoice factoring at a glance:

Advance rate: dependent on the supplier you’re matched with
Minimum client turnover (approx.): dependent on the supplier you’re matched with
Discount fee: dependent on the supplier you’re matched with
Service fee: dependent on the supplier you’re matched with

Request a quote >

Funding Options invoice discounting at a glance:

Advance rate: dependent on the supplier you’re matched with
Minimum client turnover (approx.): dependent on the supplier you’re matched with
Discount fee: dependent on the supplier you’re matched with
Service fee: dependent on the supplier you’re matched with

Request a quote >

Bibby Financial Services

Best invoice finance for customer support

Bibby was awarded the prestigious title of ‘Best Factor and Invoice Discounter’ at the National Association of Commercial Finance Brokers Awards 2017. It has an impressive Trustpilot score of nine out of 10 from over 22 reviews, which is especially impressive given its large size. Customers praise Bibby’s helpful, honest and professional service.

Bibby at a glance:

Advance rate: Up to 90%
Minimum client turnover (approx.): £100k
Discount fee: 1-3.5%
Service fee: 0.5-3.2%

Request a quote >

Pros and cons of invoice financing for small businesses

Advantages of invoice factoring

There are plenty of reasons for small businesses to consider using an invoice factoring provider, including:

1. Freeing up cash flow

As we said before, when you’re running a small business, every penny counts – always. That’s why the main reason small businesses use invoice financing services is to free up future funds that would otherwise be held as pending.

2. Reducing risk of debt

With non-recourse invoice factoring, the factoring company takes responsibility for the payment of the invoices. It isn’t easy for smaller businesses to access this type of factoring, and it will typically be more expensive, but it’s worth going for it if there’s a risk of your invoices not being paid.

3. Ability to plan better

By freeing up cash from your pending invoices, and reducing your risk of debt, you’ll be in a much better position to plan for the future of your business. What’s more, you’ll already have the cash to start turning your plans into a reality!

Disadvantages of invoice factoring

Invoice factoring offers plenty of advantages, but it’s not for everyone. Possible disadvantages include:

1. Cost

Invoice financing is great for getting you your money, and getting it fast. But, it costs money. If you have reliable clients and aren’t worried by a few slow invoices, then you might get on better with alternative funding methods.

2. Loss of control

If you hand over the responsibility of actually chasing invoices to an external company, you naturally lose some control over how you interact with your clients. A good invoice factoring company will always be highly professional in their interactions, but if you enjoy a personal relationship with your clients, invoice discounting might be a better option for you.

3. Long contracts

While some invoice factoring companies are starting to offer shorter contracts, invoice factoring is generally a longer-term commitment, rather than a ‘try it and see’ service. That needn’t be a problem, it’s just important to be aware of it and make sure you shop around first.

How to choose the best factoring company for your small business

While comparing rates online is useful, the best way to find the best factoring company for your small business is to compare a variety of quotes. That’s where we can help.

Simply use our free quote-finding tool to receive personalised quotes from the best invoice factoring suppliers for you, completely obligation-free. The questions we’ll ask are designed to give us a clearer idea of your small business’s needs, so we can get you the most accurate quotes possible.

The whole process takes just a minute, and will save you both money and time. So, what are you waiting for?

Frequently Asked Questions

What are the risks of invoice financing?

When giving someone control of an invoice, you’re obviously sacrificing a bit of control, as well as the percentage of your invoice they’re entitled too. There’s also a slight stigma toward invoice financing, as some people think it can make your business look poorly managed. However, this stigma has been falling away quickly these past few years.

Invoice financing is also not regulated by the FCA (Financial Conduct Authority), so if something goes wildly wrong, there’s not much legal action you can take.

I've just started a small startup, is invoice financing available for me?

Unfortunately, most likely not. Most invoice financing businesses have a minimum monthly turnover requirement, which can be between tens and hundreds of thousands. You’ll need to build up a bit of momentum and make a name for yourself before getting access to most of these options.

Should I use invoice factoring or invoice discounting?

It all depends on what you’re looking for! For example, if you want to hand full responsibility of the invoice to someone else, invoice factoring is a better choice. Whereas if you want to be the one chasing down customers, discounting is the way to go. And if you want to keep the whole process under wraps in the eyes of your customers, discounting is a lot more secretive than factoring.

Discounting also usually has lower fees, with higher cash advances. However, this process may not be available for very small, more volatile businesses.