Cash flow finance for UK companies

Cash flow finance is funding linked to a company's trading cycle, such as its invoices, card takings, orders or stock, rather than a fixed lump sum. The amount available usually rises and falls with sales, which makes it suited to companies whose cash is tied up between paying out and getting paid.

A term loan gives a set amount repaid over a fixed period. Most cash flow finance is an ongoing facility you draw on as needed, or funding tied to each transaction. The main products are:

• Invoice finance: borrowing against unpaid invoices raised to business customers.
• Invoice factoring: invoice finance where the provider also runs your credit control and collects payment.
• Invoice discounting: invoice finance where your company keeps control of collections, often confidentially.
• Merchant cash advance: a lump sum repaid as a percentage of future card takings.
• Revolving credit facility: a credit limit you can draw, repay and redraw, paying interest only on what you use.
• Trade finance: funding to pay suppliers, in the UK or overseas, for specific orders or shipments.
• Stock finance: funding for inventory, so you can buy in bulk or prepare for a busy season.

The right product depends on where your cash is tied up. Start with the point in your trading cycle where money gets stuck, then match the product to it.

Your business customers pay on 30 to 90 day terms

Invoice finance releases cash from those invoices soon after you raise them. Factoring suits companies that would like the provider to chase payments. Discounting suits companies with established credit control that want customers to keep paying them as normal. Our guide to factoring vs invoice discounting explains the choice in more depth.

Most of your sales are taken by card

A merchant cash advance suits businesses such as restaurants, shops and salons that take regular card payments. Repayments are a share of daily takings, so they fall in quieter periods and rise when trade is busy.

You need a buffer you can dip into

A revolving credit facility works like a flexible limit for uneven cash needs, such as paying a large supplier bill before a seasonal peak. You pay interest only on the amount drawn, and the limit is usually reviewed at renewal.

You must pay suppliers before your customer pays you

Trade finance pays your supplier so goods can be made or shipped, and you repay once the goods are sold or your customer pays. It suits importers, exporters and companies taking on orders larger than their cash allows.

You need to hold more stock

Stock finance funds inventory purchases, either per order or as an ongoing facility. It suits wholesalers, distributors and retailers that need stock on the shelf before sales arrive.

Your needs span more than one stage

Some companies combine products, for example trade finance to buy goods and invoice finance once those goods are sold on credit terms. Where two lenders are involved, they usually need to agree which assets each one has security over before funds are released.

The products differ in what the funding is based on, how it is repaid and whether customers are aware of it. The summary below shows the main differences.

• Based on: invoice finance on your debtor ledger; merchant cash advance on card takings; revolving credit on your overall trading and credit profile; trade finance on specific orders; stock finance on the value and saleability of stock.
• Repayment: invoice finance is repaid when customers pay; merchant cash advance from a share of card sales; revolving credit whenever you choose within the facility terms; trade and stock finance when goods are sold or a set period ends.
• Customer visibility: customers know about factoring; confidential discounting and most other products are not usually visible to customers.
• Term: invoice finance and revolving credit are usually ongoing facilities with a minimum term or renewal date; merchant cash advances often run for several months; trade and stock finance are often priced per transaction.
• Typical fit: B2B companies selling on credit terms suit invoice finance; card-led businesses suit merchant cash advances; importers and stock-heavy companies suit trade and stock finance.

Each product is priced differently, so compare the total cost over a realistic period of use, not a single headline rate. Fees that look small can add up on a facility used every month.

• Invoice finance, factoring and discounting: usually a service fee as a percentage of invoiced turnover, plus a discount charge on funds drawn. There may also be set-up, audit, bad debt protection and minimum annual fees.
• Merchant cash advance: a fixed factor rate sets the total repayable upfront. The faster you repay, the higher the effective annual cost.
• Revolving credit facility: interest on the drawn balance, and sometimes an arrangement, renewal or non-utilisation fee.
• Trade finance: fees or interest per transaction, plus any letter of credit charges. Currency and shipping costs sit on top.
• Stock finance: interest or a discount charge on funds drawn, plus possible valuation or monitoring fees.

Also check the minimum term, notice period and any exit fees.

Illustrative example only: actual costs depend on the lender and your circumstances. A company raises a £20,000 invoice and draws an 85% advance of £17,000. The customer pays after 60 days. The service fee is £200 and the discount charge for the 60 days is £280, so the cost is £480. When the customer pays, the provider releases the balance of £2,520: £20,000 minus the £17,000 advance and the £480 in charges.

Lenders size each product on the asset or income it is based on. The stronger and more predictable that asset or income, the more they are usually willing to provide.

• Invoice finance: a percentage of approved invoices. Lenders may reduce funding against invoices that are overdue, disputed or owed by one customer making up a large share of the ledger.
• Merchant cash advance: usually based on your average monthly card takings.
• Revolving credit: based on turnover, profitability and credit profile.
• Trade finance: based on the order, the supplier, the customer and your margin on the deal.
• Stock finance: based on the value of the stock and how quickly it can be sold.

We arrange cash flow finance for UK limited companies, LLPs and partnerships of four or more partners. Each lender sets its own minimum trading period and turnover requirements.

Depending on the product, lenders may ask for an aged debtor and creditor report, sample invoices and customer contracts, card processing statements, purchase orders and supplier details, stock reports, management accounts and recent bank statements.

Because invoice finance relies heavily on the quality of your customers, some lenders may consider companies with adverse credit, a short trading history or low profits. Other products lean more on the company's own record. Each lender decides for itself.

The main risks are what happens when a customer does not pay, how hard the facility is to leave, and the security the lender takes. Read the full agreement before you sign.

• Recourse: on most invoice finance facilities, your company must repay advances on invoices the customer does not pay, unless you have non-recourse cover or bad debt protection.
• Minimum terms and notice: ongoing facilities often have a minimum term, a notice period and exit fees.
• Whole ledger or selective: many facilities cover all your invoices, while some let you choose individual invoices, usually at a different price.
• Reviews and withdrawal: a revolving facility can be reduced or not renewed at review.
• Currency risk: on imports and exports, exchange rate moves can affect your margin.

Cash flow finance for limited companies, LLPs and partnerships of four or more partners is generally not regulated by the FCA, and Consumer Credit Act protections generally do not apply. Welcome Finance is not authorised or regulated by the FCA and arranges unregulated business finance only. Take independent advice if any term is unclear.

Welcome Finance is a broker, not a lender. Your dedicated relationship manager, a real person you can reach by phone, email and chat, works with you from your first enquiry until the lender releases funds.

1. Check eligibility in about 60 seconds without affecting your credit score.
2. Talk your relationship manager through your customers, payment terms, card takings, suppliers or stock.
3. We identify suitable lenders on our panel and explain the options in plain English.
4. If you decide to apply, lenders run their own credit checks and may audit your ledger or records.
5. We help you compare offers on total cost, minimum term, notice period, recourse and security.
6. Once you sign, the facility is set up and the lender releases funds.

We do not charge you a fee. The lender pays us a commission when the finance completes. You can ask how much it is, and it can differ between lenders. Lenders make their own decisions, so approval is never certain.

Can we switch invoice finance provider?

Usually, yes, subject to your current agreement's notice period and any exit fees. A new provider may settle the balance owed to the old one as part of the switch.

What is the difference between recourse and non-recourse factoring?

With recourse, your company bears the loss if a customer does not pay. With non-recourse, the provider covers approved bad debts, up to agreed limits, for an extra fee.

Can we finance a single invoice?

Some providers offer selective or single invoice finance, which lets you choose which invoices to fund. It can cost more per invoice than a whole-ledger facility.

Is a merchant cash advance a loan?

It is usually structured as an advance against future card sales rather than a loan, with no fixed monthly repayment. You repay an agreed total through a share of your card takings.

Will cash flow finance affect other borrowing?

It can. Many providers take a debenture, so another lender may need their agreement before taking security. Tell your relationship manager about existing facilities at the start.

Is invoice finance suitable for construction companies?

It can be harder because of stage payments, applications for payment and retentions. Some specialist lenders may consider construction ledgers, so it is worth checking.

Does an eligibility check affect our credit score?

No. Our check takes about 60 seconds and does not affect your credit score. Lenders run their own credit checks later, after you decide to apply.