Making a sale is one thing. Getting paid is another.

For thousands of UK businesses, there can be a significant gap between delivering a product or service and actually receiving the money.

A business might complete £100,000 worth of work today and issue an invoice immediately.

But if the customer is on 30-day payment terms, the business could wait a month for the cash.

On 60-day terms, it could be two months.

And with 90-day payment terms, the company could potentially wait three months before receiving money for work it has already completed.

Meanwhile, the business still needs to pay:

• Employees
• Suppliers
• Rent
• Fuel
• VAT
• Insurance
• Subcontractors
• Materials
• Software
• Finance commitments
• Everyday operating costs

This creates one of the most common challenges in business:

The company can be profitable on paper while being short of cash in the bank.

For eligible businesses selling to other businesses on credit terms, Invoice Finance can potentially help solve this problem by releasing a proportion of the value tied up in unpaid invoices earlier.

At Principal Business Finance, we can help UK businesses explore Invoice Finance facilities through our panel of commercial lenders.

Rather than waiting 30, 60 or 90 days for customers to pay, eligible businesses could potentially access a large proportion of the value of qualifying invoices shortly after they are raised, subject to the facility terms.

In this guide, we’ll explore why long payment terms can put growing businesses under pressure, how Invoice Finance works and how it can potentially turn outstanding invoices into a source of working capital.

The Problem With 30, 60 and 90-Day Payment Terms

Offering credit terms is normal across many industries.

A business supplies the product or completes the work and then invoices its customer.

The customer might have:

30 days to pay.

Or:

60 days.

Or even:

90 days.

From the customer’s perspective, this is attractive because they can retain their cash for longer.

From the supplier’s perspective, however, it creates a funding gap.

The supplier has already incurred many of the costs associated with completing the work but hasn’t yet received the revenue.

The longer the payment terms, the larger that gap can become.

And when the business is growing, the problem can become significantly bigger.

Profit Doesn’t Necessarily Mean Cash

This is one of the most important distinctions for growing businesses.

A company can be profitable and still experience serious cash flow pressure.

Imagine a recruitment company places several permanent employees and generates:

£50,000 of invoices this month.

On its profit and loss account, that £50,000 may contribute towards revenue.

But if the customers don’t pay for 60 days, the recruitment company doesn’t have that £50,000 available in its bank account today.

It still needs to pay:

• Employee salaries
• Advertising
• Job boards
• Software
• Office costs
• Marketing
• Tax
• Other operating expenses

The company has generated the revenue.

It simply hasn’t collected the cash.

That distinction becomes particularly important as a business grows.

The Cash Flow Gap Explained

Consider a business that supplies £100,000 of products to a customer.

Its cost of supplying those products is: £70,000.

The company completes the order and raises a £100,000 invoice.

The customer has agreed to pay in 60 days.

The business therefore has:

£100,000 of revenue generated. But: £0 received from the customer today.

Meanwhile, it may already have paid most of the £70,000 required to fulfil the order.

For the next two months, the company needs to fund that gap itself.

Now imagine this isn’t one transaction.

It’s happening every month.

That is how large amounts of working capital become trapped in a debtor book.

What Happens When a Business Is Growing?

Growth can make the problem worse.

This sounds counterintuitive.

Surely more sales should mean more cash?

Eventually, yes.

But where customers pay on credit terms, increasing sales can initially mean more money tied up in unpaid invoices.

Consider a company increasing monthly sales from:

£100,000 to £200,000.

If customers pay in approximately 60 days, the company’s outstanding debtor balance could potentially increase substantially.

The company now needs more:

• Stock
• Employees
• Materials
• Fuel
• Subcontractors
• Working capital

Yet the additional revenue might not arrive for another two months.

This is why some businesses experience their greatest cash flow pressure while they are growing quickly.

30-Day Payment Terms

Thirty days might not sound particularly long.

But even a one-month delay can create significant working capital requirements.

Imagine a company invoices:

£250,000 every month.

If customers consistently take around 30 days to pay, a substantial amount can remain tied up in outstanding invoices at any given time.

The business still has to fund its operating costs during that period.

For a low-margin or rapidly growing company, even 30-day terms can therefore create pressure.

60-Day Payment Terms

At 60 days, the working capital requirement becomes more significant.

A company invoicing £250,000 every month could potentially have around:

£500,000 of sales represented by two months of invoicing, before considering actual payment behaviour, VAT, disputes and other factors.

That’s potentially half a million pounds associated with work already completed but not yet collected.

The company may be profitable.

It may have strong customers.

It may have an excellent order book.

But cash is still unavailable until customers pay.

Invoice Finance can potentially help bring some of that cash forward.

90-Day Payment Terms

Ninety-day terms can create an even larger funding requirement.

For the same business invoicing £250,000 per month, three months of sales represents:

£750,000.

Actual debtor balances will naturally depend on invoice dates, customer payment behaviour and other factors.

But the example demonstrates the scale of the issue.

Large organisations can sometimes negotiate lengthy payment terms with smaller suppliers.

The supplier may want the contract because it represents significant revenue.

But it then needs enough working capital to survive the wait for payment.

This is where Invoice Finance can become particularly powerful.

What Is Invoice Finance?

Invoice Finance is a form of business funding linked to eligible unpaid customer invoices.

Instead of waiting until the customer reaches the end of their agreed payment terms, the business can potentially access a proportion of the invoice value earlier.

A simplified example might look like this:

The business completes work and raises:

£100,000 of eligible invoices.

Rather than waiting 60 days for the customers to pay, the Invoice Finance provider could potentially make an agreed proportion of those invoices available earlier, subject to the facility.

When the customers eventually pay, the facility is reconciled and applicable fees and charges are deducted.

The exact percentage available, costs and structure will depend on the provider, customers and facility.

Turning Debtors Into Working Capital

One of the biggest advantages of Invoice Finance is that it can transform an existing business asset into available working capital.

An unpaid invoice has value.

The problem is that the cash isn’t available yet.

If a company has:

£500,000 in eligible unpaid invoices

but only:

£25,000 in its bank account,

the business may feel cash-poor despite having substantial amounts owed to it.

Invoice Finance can potentially allow the business to access some of that value earlier.

That cash could then potentially be used for:

• Payroll
• Stock
• Materials
• Suppliers
• VAT
• Recruitment
• New contracts
• Equipment
• Everyday working capital

Invoice Finance Can Grow Alongside the Business

This is one of the key differences between Invoice Finance and a traditional Business Loan.

A Business Loan might provide:

£250,000 today.

The company then repays that fixed amount over an agreed term.

Invoice Finance works differently because the available funding is linked to eligible invoices.

As the company generates more qualifying sales and invoices, the amount of potential funding may also increase, subject to the facility limits and terms.

That can make Invoice Finance particularly useful for fast-growing B2B businesses.

The funding can potentially scale alongside turnover.

Example: Growing From £1 Million to £2 Million Turnover

Imagine a business currently generates:

£1 million annual turnover.

It wins several new contracts and expects turnover to increase to:

£2 million.

Fantastic.

But the new customers pay on 60-day terms.

The company now needs additional employees, materials and stock to fulfil the increased workload.

Its revenue is increasing quickly.

But so is its debtor book.

A traditional fixed Business Loan could provide additional working capital.

However, Invoice Finance could potentially provide a facility that increases alongside eligible invoicing.

As more qualifying invoices are raised, more funding can potentially become available.

This can help the company’s cash flow keep pace with its sales growth.

Invoice Finance for Recruitment Companies

Recruitment is a classic example of an industry where payment terms can create significant working capital pressure.

A temporary recruitment agency might need to pay workers:

Weekly.

But the end customer might pay the recruitment company:

30, 60 or even 90 days later.

The agency therefore needs to fund several weeks of payroll before receiving customer payments.

The faster the recruitment company grows, the larger the payroll requirement becomes.

Invoice Finance can potentially release cash against eligible invoices, helping bridge the gap between paying workers and collecting from customers.

Invoice Finance for Construction Businesses

Construction businesses can face substantial payment delays.

A contractor or subcontractor might need to pay for:

• Labour
• Materials
• Plant hire
• Fuel
• Subcontractors
• Insurance

Yet customer payments may arrive significantly later.

Depending on the nature of the contracts, invoices and lender criteria, specialist Invoice Finance facilities may potentially be available.

Construction funding can be more complex because of applications for payment, staged payments, retentions and contractual structures, so the individual circumstances matter.

Invoice Finance for Manufacturing Businesses

Manufacturers often experience a long cash conversion cycle.

They might:

1. Purchase raw materials.
2. Pay employees.
3. Manufacture the product.
4. Deliver it.
5. Raise the invoice.
6. Wait another 30–90 days for payment.

Cash can therefore be committed for a significant period before returning to the business.

Invoice Finance can potentially shorten the final part of that cycle by releasing funds against eligible invoices earlier.

Invoice Finance for Transport and Logistics Companies

Transport companies often have significant weekly costs.

These can include:

• Drivers
• Fuel
• Vehicle finance
• Insurance
• Maintenance
• Subcontractors

But commercial customers may pay much later.

A transport company could therefore complete hundreds of deliveries while waiting weeks for the related invoices to be settled.

Invoice Finance can potentially help align incoming cash more closely with the company’s ongoing operating costs.

Invoice Finance for Wholesalers and Distributors

Wholesalers face pressure at both ends of the transaction.

Suppliers may expect payment quickly.

Customers may expect 30 or 60-day credit terms.

The wholesaler sits in the middle.

It has to purchase the stock before it receives payment for selling it.

Invoice Finance can potentially release cash from eligible sales invoices, allowing that capital to be recycled into additional stock.

For rapidly growing wholesalers, this can be particularly valuable.

Invoice Finance for Professional Services Businesses

Invoice Finance isn’t restricted to companies selling physical goods.

Eligible service businesses can also experience substantial debtor balances.

This might include:

• Consultants
• Security companies
• Facilities management
• Marketing agencies
• IT businesses
• Outsourcing companies
• Commercial cleaning businesses
• Engineering services

Where work is completed and invoiced to creditworthy business customers, Invoice Finance may potentially be relevant.

Invoice Discounting vs Invoice Factoring

There are different forms of Invoice Finance.

Two of the best known are:

Invoice Discounting and Invoice Factoring.

Although both can release funding against eligible invoices, there are important differences.

What Is Invoice Discounting?

With Invoice Discounting, the business generally retains responsibility for managing its sales ledger and collecting customer payments.

This can potentially allow the company to maintain greater control over customer relationships.

Depending on the facility, the arrangement may sometimes operate on a confidential basis.

Invoice Discounting is commonly associated with more established businesses that have strong internal credit-control processes, although exact eligibility varies between providers.

What Is Invoice Factoring?

With Invoice Factoring, the finance provider may also take a more active role in managing the sales ledger and collecting customer payments.

For businesses without a dedicated credit-control function, this can potentially provide an additional operational benefit.

The most appropriate structure depends on the business, customer base, internal processes and lender requirements.

Selective and Spot Invoice Finance

Some businesses don’t necessarily want to fund their entire sales ledger.

They may only need funding against:

• One invoice
• One customer
• A particular contract
• A temporary cash flow requirement

Depending on the business and provider, Selective or Spot Invoice Finance may potentially be available.

This can provide greater flexibility for companies that don’t require a traditional whole-turnover facility.

Invoice Finance vs Waiting for Customers to Pay

Suppose a business has £200,000 of eligible invoices due in 60 days.

It could simply wait.

If the company has plenty of surplus cash and no immediate opportunities, that may be perfectly manageable.

But what if during those 60 days the business could use additional working capital to:

• Accept another contract
• Purchase discounted stock
• Recruit employees
• Pay suppliers early
• Increase marketing
• Take on additional customers

There is potentially an opportunity cost to waiting.

Invoice Finance can allow businesses to consider whether accessing some of that cash earlier creates greater commercial value than leaving it tied up in the debtor book.

Invoice Finance vs a Business Loan

Both can provide working capital, but they work differently.

A Business Loan provides an agreed lump sum that is repaid over an agreed term.

Invoice Finance is linked to eligible unpaid invoices.

A loan may be appropriate for a fixed requirement such as:

£100,000 for a specific expansion project.

Invoice Finance can potentially be more appropriate where the problem is:

“Our sales are increasing, but more and more cash is becoming trapped in our debtor book.”

The right structure depends on the actual reason funding is required.

Invoice Finance vs Revolving Credit

A Revolving Credit Facility can provide an agreed credit limit that the business can draw, repay and potentially access again.

Invoice Finance is instead linked to eligible receivables.

For businesses selling predominantly B2B on credit terms, Invoice Finance can have the advantage of potentially scaling alongside the debtor book.

For businesses that don’t generate eligible invoices, Revolving Credit could potentially be more relevant.

Can Invoice Finance Help With Late-Paying Customers?

There’s an important distinction between:

Long agreed payment terms

and:

Overdue or disputed invoices.

Invoice Finance can help accelerate access to funds against eligible invoices, but it doesn’t make bad debts or disputes disappear.

Providers will consider factors such as:

• Customer creditworthiness
• Invoice validity
• Payment history
• Concentration
• Disputes
• Age of debt
• Contract terms

Businesses still need effective credit-control processes.

Invoice Finance is a cash flow tool, not a substitute for ensuring customers are capable of paying.

Customer Concentration Matters

Imagine a company has £1 million of outstanding invoices.

That sounds like a substantial debtor book.

But what if:

£900,000 is owed by one customer?

That represents significant concentration risk.

Invoice Finance providers may consider how much of the debtor book is represented by individual customers.

A diversified customer base can present a different risk profile from a business heavily dependent on one debtor.

This doesn’t automatically mean finance is unavailable, but it can affect facility structure and funding levels.

The Cost of Invoice Finance

Invoice Finance isn’t free.

Costs vary depending on factors such as:

• Turnover
• Number of customers
• Invoice values
• Customer credit quality
• Facility type
• Amount of funding used
• Business sector
• Concentration
• Administration required

Rather than looking only at the headline cost, businesses should consider the commercial impact.

For example:

What could the business do with the cash if it received it 60 days earlier?

If earlier access allows the company to take on profitable contracts, negotiate better supplier terms or continue growing without cash flow becoming a bottleneck, the facility could potentially generate value beyond simply accelerating payment.

Improving Your Debtor Management Before Applying

Businesses considering Invoice Finance can benefit from keeping their debtor book organised.

That can include:

• Raising invoices promptly
• Ensuring invoice details are correct
• Agreeing payment terms clearly
• Resolving disputes quickly
• Keeping proof of delivery
• Maintaining accurate customer records
• Monitoring overdue invoices
• Keeping credit-control notes
• Reconciling payments regularly

A clean, well-managed sales ledger can make the business easier for a prospective funder to assess.

Don’t Wait Until Cash Flow Is Critical

One mistake businesses sometimes make is only exploring Invoice Finance when their cash position has already become extremely tight.

If a company knows its sales are growing and customers consistently pay on 60 or 90-day terms, it may make sense to explore potential funding before the cash flow pressure becomes urgent.

This can give the business more time to understand:

• Facility options
• Funding levels
• Costs
• Contract terms
• Implementation
• Customer notification requirements

The objective is to have working capital available when growth occurs rather than trying to solve the problem after cash has already run short.

Example: The £500,000 Debtor Book

Imagine a successful B2B company.

It generates approximately:

£3 million annual turnover.

Its customers typically pay on:

60-day terms.

The company has approximately:

£500,000 tied up in unpaid invoices.

Meanwhile, the business has:

£50,000 available in the bank.

It wins a major new customer.

The contract is profitable, but management needs to recruit additional employees and purchase more stock.

The company faces a frustrating situation.

It has generated substantial revenue and has £500,000 owed to it—but only a fraction of that money is currently available.

Subject to eligibility and facility terms, Invoice Finance could potentially release a proportion of those eligible invoices earlier.

The company can then potentially recycle that cash into fulfilling the next round of orders.

As more qualifying invoices are generated, additional funding may become available.

That is the fundamental attraction of Invoice Finance:

It can turn growth in the debtor book into additional working capital rather than additional cash flow pressure.

What Information Might an Invoice Finance Provider Need?

Requirements will vary depending on the business and provider.

Information could include:

• Latest annual accounts
• Management accounts
• Aged debtor report
• Aged creditor report
• Bank statements
• Customer information
• Turnover
• Existing finance
• Sample invoices
• Contracts
• Payment terms
• Credit-control processes

For larger facilities, more detailed due diligence may be required.

Principal Business Finance can help establish what information is required and manage the introduction to relevant providers.

How Principal Business Finance Can Help Arrange Invoice Finance

At Principal Business Finance, we work with a wide panel of commercial lenders and Invoice Finance providers.

This means we can explore different types of facilities depending on the business and its requirements.

These can potentially include:

• Invoice Factoring
• Invoice Discounting
• Confidential Invoice Discounting
• Selective Invoice Finance
• Spot Invoice Finance
• Whole-Turnover Facilities
• Recruitment Finance
• Construction-related Invoice Finance
• Trade and Working Capital Solutions

The starting point is understanding why the cash flow gap exists.

If a business has £500,000 tied up in unpaid B2B invoices, Invoice Finance may potentially address the underlying issue more directly than repeatedly taking short-term Business Loans.

If the requirement is instead for stock purchases before an invoice is generated, another working capital facility could potentially be more appropriate.

Principal Business Finance can look at the wider requirement, approach relevant funders and manage the application process through to completion.

All finance is subject to application, status, provider criteria and approval.

Stop Letting 30, 60 and 90-Day Payment Terms Control Your Growth

Long payment terms are a normal part of doing business.

But they don’t necessarily need to dictate how quickly your company can grow.

If your business completes the work today but waits two or three months for payment, significant amounts of cash can become trapped in your sales ledger.

The bigger the business becomes, the bigger that problem can become.

That’s why Invoice Finance can be particularly relevant for growing B2B businesses.

Rather than waiting for customers to pay before recycling that money into the next job, order or contract, eligible businesses can potentially access a proportion of qualifying invoice values earlier.

That can help provide working capital for:

Payroll.

Stock.

Materials.

Suppliers.

Recruitment.

New contracts.

Growth.

At Principal Business Finance, we can help UK businesses explore Invoice Finance through our wide panel of commercial lenders and specialist providers.

If your business is profitable but constantly feels short of cash because customers take 30, 60 or 90 days to pay, the problem might not be your sales.

It might simply be how long you’re waiting to turn those sales into cash.

Contact us on 01604217998, email info@principalbusinessfinance.co.uk, or enquire here.

Invoice Finance is subject to application, status, eligibility, provider criteria and approval. Funding percentages, costs and terms vary between facilities and providers.