Invoice discounting: borrowing against your sales ledger while you keep the collecting

Invoice discounting is the quieter half of invoice finance. The business that invoices on 30, 60 or 90 day terms draws money against those invoices as soon as they are raised, and goes on dealing with its customers exactly as before. This page explains how a facility runs, the choice between confidential and disclosed, what recourse means when a customer does not pay, and what a lender wants to see. CapExpand is a broker. We have access to a range of UK commercial finance lenders through our principal, White Rose Finance Group Limited. The lender makes every credit decision.

What invoice discounting is

When a company sells to another business on credit, it raises an invoice and waits for the payment date. Invoice discounting lets the company borrow against that invoice in the meantime. The lender takes an assignment of the debts owed to the company, which is the legal right to be paid them, and in return makes an advance equal to an agreed percentage of each approved invoice. When the customer pays, the advance is repaid and the balance, less the lender's charges, is released to the company.

The facility is revolving. New invoices raise the amount available and payments reduce it, so the borrowing moves with the sales ledger rather than sitting as a fixed sum. A company whose ledger grows in a busy quarter can draw more in that quarter without going back for a new agreement, and a company whose ledger shrinks owes less.

The product belongs to the business-to-business world. It is written against invoices raised to other businesses on credit terms, with a paper trail that shows the goods were delivered or the service performed. Sales to consumers, cash sales and card takings do not create the kind of debt a discounter advances against.

How a facility runs, step by step

1. The ledger is set up. The lender reviews the sales ledger, approves the customers it will advance against and sets a limit for each of them and a limit for the facility as a whole.
2. You raise invoices as normal. Each invoice is notified to the lender, today almost always by a feed from the accounting software, and the approved share of it becomes available to draw.
3. You draw what you need. The company draws against the availability when it wants the cash and leaves the rest undrawn.
4. Your customers pay. On a confidential facility they pay into a trust account in your company's name that the lender controls; on a disclosed facility they pay the lender directly. Either way the payment clears the advance on that invoice.
5. The lender reconciles. Each month the lender reconciles the ledger, the drawings and the collections, and applies its charges.

Confidential or disclosed

On a confidential facility the customer does not know the invoice is financed. The invoice looks as it always did, the customer pays the company's account as it always did, and the lender sits behind the trust account. Lenders reserve confidential terms for businesses whose own credit control they are prepared to rely on, because they are not watching the debtor themselves.

On a disclosed facility the invoice carries a notice of assignment: a line telling the customer that the debt has been assigned and naming the account to pay. The company still does its own collecting. Disclosure gives the lender a direct legal relationship with the debtor, which is why a lender may offer it to a younger business or a thinner ledger where it would not offer confidentiality.

Which of the two a lender will write for a given company is the lender's decision, made on the ledger, the systems and the track record. Our part is to put the case to the lenders whose published criteria it meets and to set out what each one offers, side by side, so the decision is yours.

Recourse, non-recourse and bad debt protection

Recourse is the default. If a customer has not paid by the end of the recourse period the lender sets, the invoice is handed back, the advance against it is reversed and the company carries the loss. Non-recourse facilities, and recourse facilities with bad debt protection added, move the loss on an approved debtor to the lender or its insurer, up to the limit set for that debtor. The protection costs more and the lender decides which debtors it will cover.

A disputed invoice is a different thing from a slow payer. If the customer says the goods were faulty or the work was not done, the debt is in dispute and no form of cover answers for it: it comes back to the company whatever the facility type.

Invoice discounting against factoring

Both products advance money against invoices and both are described on the invoice finance page. The difference is credit control. With factoring the lender runs the sales ledger: it sends statements, chases payment and takes the calls, and the customers pay the factor. With discounting the company does all of that itself. A business with a credit controller and clean systems tends to be offered discounting; a business that would rather hand the chasing to someone else, or that a lender does not yet want to rely on for collections, is offered factoring. Which one a business uses is its own decision.

How the cost is expressed

Every invoice discounting agreement prices two things. A service fee, expressed as a percentage of the turnover put through the facility, pays for running the ledger and the reconciliations. A discount charge, expressed as a margin over a reference rate on the money actually drawn, is the interest. The reference rate is usually the lender's base rate or Bank Rate, which the Bank of England has held at 3.75% since 18 December 2025. Each lender publishes its own fee, its own margin, its own minimum annual charge and its own arrangement fee, and they change; we set out the figures each lender provides so you can compare them.

Two lines in the agreement decide more of the real cost than the headline margin: the minimum fee, which is payable whether or not the facility is used, and the notice period and exit terms. Both are worth reading before signing.

Who uses it

Manufacturers and wholesalers paid on retailer terms, recruitment agencies paying a weekly payroll against monthly settlement, hauliers and subcontractors on 60-day terms, professional firms billing in arrears: any trading company whose cash is held in invoices it has already earned. The forty town pages describe the invoice-shaped sectors in each place from the ONS business register.

What a lender asks for

An aged debtor report from the accounting system, the last filed accounts, recent management figures, the last 3 months of bank statements or an Open Banking connection, sample invoices with their purchase orders and proof of delivery, and the terms of trade with the main customers. The lender is reading three things: how concentrated the ledger is, how well the company collects, and whether the debts are clean, meaning uncontested, assignable and not already pledged to anyone else.

Enquiring does not affect your credit score. If you apply to a lender, it runs its own credit search, which may be recorded on your file. We arrange finance only once a business has traded for 3 months, for amounts from £10,000. We work with UK limited companies and LLPs only, for business and commercial purposes.

Sources

The definitions above follow the industry body's and the British Business Bank's published descriptions. No lender's figures appear on this page; each lender publishes its own and they change.

1. UK Finance, Invoice Finance and Asset Based Lending
2. British Business Bank, invoice finance guidance
3. Bank of England, Bank Rate (3.75% since 18 December 2025)
4. FCA, consumer credit and the regulated perimeter
5. Companies House, CapExpand Ltd 14433858