How invoice finance can ease year-end cash flow

The end of the year is a time when many businesses are gearing up for the festive rush. But it’s also a time when many businesses see their cash flow get stretched to its limit – while you’ve got stock to buy, staff bonuses to pay, and tax bills coming up, your customers are likely taking their time to settle invoices.

Nearly two-thirds of SME invoices were paid late in the past year, and the average business is owed around £17,000 at any given time. When you’re waiting 30, 60, or even 90 days for payment, that missing cash can turn what should be a busy season into a stressful one.

As well as costing businesses money, late invoice payments take up time, too. Business owners spend an average of 86 hours a year chasing late payments – time that could be spent growing your business.

But there’s a way to take back control. Invoice finance lets you access up to 95% of the value of your unpaid invoices within 24-48 hours.

In this article, we’ll explain the causes of end-of-year cash flow issues, how invoice finance could help ease the pressure, what to bear in mind when considering invoice finance, and more. 

Key points:

• Cash flow often gets squeezed towards the end of the year due to increased costs and late invoice payments

• Invoice finance lets you unlock up to 95% of the cash tied up in unpaid invoices within 24-48 hours

• Funding Options by Tide can help when optimisation of working capital isn’t enough, offering access to business finance up to £20 million

What causes cash flow to tighten at the end of the year?

The run-up to December is a busy time of year for many businesses, and it’s often when cash flow is tightest. Customers may delay payments to manage their own year-end finances, leaving your business in the lurch. And while your sales might increase, your expenses likely will too thanks to supplier costs, stock replenishment, and extra seasonal staff or bonuses. And that’s before January’s tax bill.

For many seasonal businesses, the challenge is even greater. Retailers and hospitality companies often see a boost in sales over the holidays, but that’s followed by a quiet January and February. These businesses need cash now to prepare for the rush, but won’t see the returns for weeks or even months. Meanwhile, manufacturing businesses can have hundreds of thousands of pounds tied up in invoices that won’t be paid until well into the new year. It’s a perfect storm of expenses and delays, and it’s enough to keep anyone up at night.

Fortunately, you don’t have to just ride it out. Invoice finance is designed for exactly this kind of situation. It bridges the gap between sending an invoice and getting paid, so you’re not left struggling to cover your costs. And with alternative lenders now accounting for 60% of SME funding, there are more flexible options than ever to keep your business moving.

How can invoice finance bridge gaps in cash flow?

Invoice finance works by unlocking the cash tied up in your unpaid invoices. Here’s how it’s done:

1. You raise an invoice as usual

2. A finance provider advances you up to 95% of its value, usually within 24-48 hours

3. When your customer finally pays, you receive the remaining balance, minus a small fee

There are two main types of invoice finance to choose from.

• Invoice factoring: The provider takes over your sales ledger and chases payments for you. It’s a hands-off option if you don’t have the time or resources to manage collections.

• Invoice discounting: This keeps everything confidential. You stay in control of your customer relationships, and your clients won’t even know you’re using finance.

Both options give you the cash you need upfront, so you can focus on running your business instead of chasing payments.

If you’re looking for a more flexible option, there’s selective invoice finance, too. This lets you pick and choose which invoices to fund, so you’re not locked into financing your entire sales ledger. This can be a smart choice if you’ve got a few large invoices that are taking a long time to get paid, or if you just need a quick cash injection to cover a specific cost.

What to bear in mind when considering invoice finance

Like any financial product, invoice finance has some downsides as well as benefits.

• Costs: You’ll typically pay a service fee of around 0.2-2% of your turnover, plus interest on the funds advanced. For a £10,000 invoice, that might mean a fee of £150-£300 upfront. But compared to the cost of late payments (lost time, missed opportunities, the stress of juggling bills, etc) it could be a small price to pay for peace of mind.

• Eligibility: Your business will usually need to be trading for at least a few months, with a minimum turnover (this varies by finance provider). Some lenders will also look at how concentrated your customer base is. If one client accounts for more than 25% of your sales, your options might be more limited.

• Customer relationships: With invoice factoring, the provider takes over your sales ledger and chases payments for you. This can save you time, but it also means your customers will know you’re using finance. If you’d rather keep things confidential, invoice discounting lets you stay in control of collections.

• Flexibility: Not all invoices will qualify for funding. Some providers have minimum invoice values, and others may exclude certain industries or customers. But with selective invoice finance, you can pick and choose which invoices to fund, so you’re not locked into financing your entire sales ledger.

• Recourse vs. non-recourse: Most agreements are recourse, meaning you’re ultimately responsible if your customer doesn’t pay. But some providers offer non-recourse options for a slightly higher fee, which protects you against bad debt.

• Misconceptions: Invoice finance isn’t just for struggling businesses. It’s used by thousands of successful companies to fuel growth and cover gaps in cash flow.

How quickly can you get invoice finance, and what does it cost?

When it comes to costs, most providers charge a service fee (typically 1.5-4.5% above the Bank of England base rate) plus a small percentage of the invoice value. The exact amount will depend on your agreement, but it can be much less than the cost of late payments in lost time and missed opportunities.

Speed is where invoice finance really shines. Once you’re approved, you could have funds in your account within 24-48 hours. That can be a significant boost when you’re facing a cash flow crunch before the year-end.

How to get started before year-end

Getting started with invoice finance is fairly simple. First, you’ll need to get hold of your key documents – like your aged debtor report and a few months of trading history. Then, you’ll want to compare providers to find the most suitable deal for your business. With Funding Options by Tide, you can check your eligibility in minutes and get matched with lenders who understand your needs.

Once you’ve chosen a provider, the application process is typically quick and straightforward. You’ll usually get a decision within hours, and funds could be in your account within 24-48 hours. That means you could have the cash you need to cover December’s costs before the month even begins. And with no obligation to proceed, there’s no risk in seeing what’s on offer.

The most important thing is to act now. The longer you wait, the more pressure you’ll face as the year-end deadline approaches.

Alternatives to invoice finance to help end-of-year cash flow

Invoice finance isn’t the only way to help address year-end cash flow pressures. Depending on your needs, you could also consider the following options.

• Revolving credit facility: A flexible line of credit that lets you borrow, repay, and borrow again as needed. This can help cover ongoing costs like buying stock or covering unexpected expenses. You only pay interest on the amount you use.

• Unsecured business loan: Get a lump sum upfront, with fixed repayments over a set term. Suitable for bigger one-off costs, like upgrading equipment or marketing campaigns.

• Merchant cash advance: Borrow against your future card sales, with repayments that flex with your revenue. A smart option if your business takes a lot of card payments but you don’t want the hassle of chasing invoices.

• Business credit card: Suitable for smaller, day-to-day expenses. Many cards offer cashback or rewards on spending, and you can track employee expenses easily.

• Asset finance: If you need to buy equipment or vehicles, asset finance lets you spread the cost over time. The asset itself acts as security, so you won’t need to put up additional collateral.

• Overdraft or credit line: Provides a short-term buffer for unexpected costs. Ideally used for emergencies rather than long-term funding, as interest rates can be higher.

The right choice will depend on your business’s needs. But the important thing is to act before the year-end rush leaves you short of cash. With the right funding in place, you can focus on growing your business and starting next year on the front foot.

Find business finance with Funding Options by Tide

Whether you’re looking for a standard business loan, a short-term business loan, or something a little more specialist, like auction finance for property developers, we’re one of the leading names in business finance in the UK, having helped facilitate over £1 billion in finance to more than 20,000 customers.

Checking if you’re eligible is free, only takes a few minutes, and while a full application would impact your personal or business credit score, checking eligibility won’t. Just submit your details via the link below to find out if you could be eligible to borrow up to £20 million.

Find business finance.

FAQs

How quickly can I access cash with invoice finance?

Invoice finance is one of the fastest ways to unlock cash. Once approved, you’ll typically receive funds within 24-48 hours.

Will my customers know I’m using invoice finance?

It depends on the type of finance you choose. With invoice discounting, your customers won’t know since you’ll stay in control of collections. With invoice factoring, the finance provider manages your sales ledger, so your customers will be aware.

Can I use invoice finance if I only have a few unpaid invoices?

Yes, if you choose selective invoice finance. This lets you choose which invoices to fund, so you’re not tied into financing your entire sales ledger.

What happens if my customer doesn’t pay?

Most invoice finance agreements are recourse, meaning you’re ultimately responsible for repayment if your customer defaults. But many providers offer non-recourse options, which protect you against bad debt, for a slightly higher fee.

Is invoice finance suitable for startups?

It can be, but you’ll usually need at least a few months of trading history. If you’re a newer business, alternatives like a revolving credit facility or unsecured loan might be a better fit.

How much does invoice finance cost?

Costs vary, but you’ll typically pay a service fee of 0.2-2% of your turnover, plus interest on the funds advanced. For a £10,000 invoice, that might mean a fee of £150-£300 upfront.

Can I use invoice finance alongside other funding?

Yes. Many businesses combine invoice finance with other solutions, like a merchant cash advance or business loan, to cover different needs.

Will invoice finance affect my credit score?

Checking your eligibility won’t impact your score. But if you proceed with an application, some providers may perform a hard credit check, which could leave a temporary mark.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.