Selective invoice finance: fund single invoices when you need cash

Selective invoice finance works in two stages: a one-off set-up with the lender, then quick funding of individual invoices whenever you choose. The set-up takes the longest, but later invoices are usually much faster.

1. Onboarding: the lender checks your company, directors, bank statements and terms of trade, and signs a framework agreement with you.
2. Invoice submission: you send the invoice, proof of delivery or completion and details of the customer.
3. Verification: the lender credit-checks the customer, sets a limit for them and may contact them to confirm the invoice is genuine and undisputed.
4. Advance: the lender pays an agreed percentage of the invoice value to your account.
5. Collection: your customer pays the lender, or pays into an account the lender controls.
6. Settlement: the lender deducts its fees and releases the remaining balance to you.

Each funded invoice is a separate transaction. When it is settled, your obligation on that invoice usually ends, and nothing more is funded until you choose to submit another.

The right structure depends on how often you expect to need funding and whether the need is tied to one customer. Both let you avoid committing your whole sales ledger.

• Single invoice finance (spot factoring): best for a genuinely one-off need, such as a large order with long payment terms. You pay only for that transaction and there is usually nothing ongoing.
• Selective customer facility: better if one or two major customers pay slowly every month. Funding their invoices on a rolling basis can be simpler and sometimes cheaper per invoice than funding them one at a time.
• Either, with credit protection: if a single customer makes up a large share of your sales, ask whether cover against that customer's insolvency is available and what it costs.

If you find yourself funding most invoices most months, it may be time to compare a whole-ledger facility instead.

Selective invoice finance is usually priced per invoice rather than through an ongoing service fee. You pay more per invoice than on a whole-ledger facility, but nothing in months when you do not use it.

• Invoice fee: a percentage of the invoice value, often charged for each period, such as 30 days, that the invoice is outstanding.
• Admin or transaction fee: a fixed charge per invoice to cover checks and processing.
• Set-up or onboarding fee: a one-off charge when you first join, which some lenders waive.
• Extension charges: further fees if your customer pays after the expected date.
• Credit protection: an extra charge if you choose cover against customer insolvency.
• Facility or minimum fees: some selective customer facilities include a monthly or annual minimum.

Lenders price on your customer's creditworthiness, the invoice size, the payment term, your sector and how likely the invoice is to be disputed. Because fees often run per period, a customer who pays two weeks late can noticeably raise the cost. Compare offers on the total cost for a realistic payment date.

Illustrative example only: actual costs depend on the lender and your circumstances.

Imagine a manufacturer raises a £40,000 invoice to a large customer on 60-day terms. A lender advances 85% and charges 1.5% of the invoice value for each 30 days the invoice is outstanding, plus a £150 admin fee.

• Advance: £34,000 (85% of £40,000)
• Invoice fee for 60 days: £1,200 (two periods of £600)
• Admin fee: £150
• Total cost: £1,350
• Balance released when the customer pays: £4,650 (£40,000 minus £34,000 minus £1,350)

If the customer paid on day 75 and the lender charged for each part period, the invoice fee would rise to £1,800 and the total cost to £1,950.

The amount depends mainly on the invoice and the customer who owes it. Lenders typically advance a percentage of the invoice value and set a credit limit for each customer they will fund.

• Customer strength: larger, financially strong customers with good payment records usually support a higher advance and a higher limit.
• Invoice size: lenders set a minimum invoice value and may cap how much they fund for any one customer.
• Payment terms: very long terms may reduce the advance or rule the invoice out.
• Invoice quality: disputed invoices, stage payments, retentions, credit notes and contra arrangements may be excluded or funded at a lower percentage.
• Your company: your trading record and finances still matter, even though the customer is the main focus.

Unlike a whole-ledger facility, the total available is not set by your full sales ledger, only by the invoices you put forward and the limits the lender sets.

Selective invoice finance is simple to use, but the agreement still matters, particularly what happens if a customer pays late or not at all.

• Recourse: on most deals, if the customer does not pay within an agreed time, you must repay the advance and any fees.
• Guarantees and warranties: directors are often asked for a personal guarantee or an indemnity confirming invoices are genuine.
• Customer relationship: check how and when the lender contacts your customer, and how it will chase payment.
• Existing lenders: if another lender holds a debenture over your company, it may need to agree before your invoices can be funded.
• Disputes: if the customer raises a complaint or credit note, the lender may ask you to repay part of the advance.
• Notice periods and minimums: check whether any rolling customer facility has a minimum fee or notice period.

Selective invoice finance suits occasional or targeted funding. If you need cash from invoices every month, a whole-ledger facility is often better value.

• Invoice finance: an ongoing facility across your whole sales ledger, where funding grows with your sales. Often cheaper per invoice for regular users.
• Invoice factoring: the lender funds your ledger and runs credit control and collections for you. Useful if you lack in-house resources to chase payments.
• Invoice discounting: you keep collecting payments yourself and the facility can often stay confidential. Usually suits larger, established companies with strong credit control.

A simple test: if you expect to fund invoices most months, compare the yearly cost of a whole-ledger facility with what you would pay invoice by invoice. Our guide to factoring vs invoice discounting compares the whole-ledger options in more detail.

Often, yes. Because lenders focus on the customer who owes the invoice, selective invoice finance can be available to companies that find other borrowing harder, as long as the invoice and customer are strong.

Lenders still check your company and directors. A short trading history, low profits or adverse credit may limit the lenders willing to help or reduce the advance, and each lender sets its own minimum trading period. Each lender makes its own decision.

Invoice finance for limited companies, LLPs and partnerships of four or more partners is generally unregulated, so most Consumer Credit Act protections do not apply. Your rights come mainly from the agreement and any guarantee or indemnity you sign.

Read the full terms, especially on recourse, disputes and customer contact, and take independent legal or financial advice if anything is unclear. Our guide to regulated vs unregulated business finance explains more. Welcome Finance is a broker, not a lender, and is not authorised or regulated by the FCA.

We help you find suitable lenders on our panel for the invoices you want to fund, and a dedicated relationship manager works with you by phone, email and chat from first enquiry until the lender pays out.

1. Check your eligibility in about 60 seconds, without affecting your credit score.
2. Tell your relationship manager about the invoice, the customer and when you need the cash.
3. We approach suitable lenders and explain offers in plain English, including fees, recourse terms and how your customer will be contacted.
4. You decide whether to apply. The lender runs its own credit checks and makes its own decision.
5. Once you are set up, the lender advances funds against approved invoices.

We don't charge you a fee. We are paid a commission by the lender when your finance completes, and you can ask how much it will be. Commission can differ between lenders. See how we are paid.

Can I fund invoices to public sector customers?

Often, yes. Many lenders view public sector bodies as strong payers, although some contracts restrict assignment, so share the contract terms early.

Can I fund an invoice that is already overdue?

Sometimes, but lenders are cautious. An invoice well past its due date may be declined or funded at a lower advance.

Can I use it alongside a whole-ledger facility?

Usually not with a different lender, because the existing facility normally covers all your invoices. Ask your current provider whether invoices can be excluded.

What happens if my customer disputes the invoice?

The lender will usually expect you to resolve the dispute and may ask you to repay the advance until it is settled.

Can I fund invoices to overseas customers?

Some lenders fund export invoices, but many focus on UK customers. Expect extra checks on the customer and their country.

Do I need to fund every invoice from a customer?

With single invoice finance, no. With a selective customer facility, you may need to put all invoices to that customer through the facility.

Does selective invoice finance appear on my balance sheet?

Accounting treatment depends on the agreement, including recourse terms. Ask your accountant how the arrangement should be shown in your accounts.

Can construction companies use it?

Sometimes. Applications for payment, retentions and stage payments are harder to fund, but invoices for completed, certified work may be accepted by some lenders.