What Are the Alternative Solutions to Invoice Finance?

Key Takeaways

• Invoice finance depends on having a steady flow of outstanding invoices, so it isn't the right fit for every business.
• Asset-based lending and stocking finance suit businesses whose cash flow pressure comes from assets or stock rather than customer payment terms.
• Working capital loans and unsecured business loans offer a fixed, predictable lump sum for businesses that would rather not tie funding to invoices or assets at all.

What Are the Alternative Solutions to Invoice Finance?

Invoice finance has become one of the most popular ways for UK businesses to unlock cash tied up in unpaid customer invoices, but it isn't the only route to improving cash flow or funding growth.

Companies that invoice consumers rather than other businesses, or that don't hold significant outstanding invoice value, may find other forms of funding better suited to how they operate. This article looks at what invoice finance involves, before setting out four alternative solutions for UK businesses.

What is invoice finance?

Invoice finance allows a business to borrow against the value of invoices it has already raised but is yet to be paid for. Rather than waiting the usual 30 to 90 days for a customer to settle, a funder advances a percentage of the invoice value, with the remaining balance released once payment comes in, minus the funder's fee.

It works well for B2B businesses managing long payment terms or fast-growing order books, since funding scales naturally with your sales ledger. But it depends entirely on having a steady flow of outstanding invoices to lend against, which means it isn't always the most appropriate option.

Below are four alternatives that may be worth exploring instead.

Asset-based lending

Asset-based lending takes a broader view of a business's balance sheet than invoice finance alone. Rather than borrowing purely against your sales ledger, a facility can be structured to combine funding against invoices with lending secured on other assets your business holds, such as stock, plant, machinery or property.

This tends to suit businesses that have a mix of valuable assets beyond just their invoices, and that are looking for a larger, more flexible facility than invoice finance alone could typically provide. It can be particularly useful for manufacturing, distribution or asset-heavy businesses that want to release value across multiple parts of the balance sheet in a single arrangement, rather than arranging separate facilities for each asset type.

Working capital loans

A working capital loan provides a lump sum of funding designed specifically to cover the day-to-day running costs of a business, rather than being tied to a particular asset or invoice.

Unlike invoice finance, where the amount available fluctuates with your sales ledger, a working capital loan gives you a fixed sum, repaid over an agreed term. This can suit businesses that need predictable, upfront funding rather than a facility that scales with invoicing, or that don't have a large enough outstanding debtor book to make invoice finance worthwhile. It's often used to smooth over short-term cash flow gaps, fund a specific growth initiative, or provide a cushion during a quieter trading period.

Stocking finance

Stocking finance is designed to help businesses fund the purchase of stock or inventory, typically for sectors where seasonal demand, bulk purchasing, or long lead times create pressure on cash flow. Rather than paying for stock outright and tying up working capital, a business can use stocking finance to spread that cost while inventory is purchased and sold on.

This is a particularly useful alternative for retailers, wholesalers or dealerships that need to hold significant stock levels ahead of a busy trading period, but don't necessarily have large volumes of outstanding invoices to fund against. Where invoice finance releases cash from what you've already sold, stocking finance supports what you're about to sell.

Unsecured business loans

An unsecured business loan provides a lump sum of funding without requiring any specific asset, invoice or piece of property as security. Instead, lenders assess the loan based on the overall creditworthiness and trading history of the business (and often a personal guarantee from its directors), rather than what's sitting in the sales ledger or on the balance sheet.

This route can suit businesses that would rather take on a fixed, predictable repayment structure than a facility that moves with their invoicing. It also tends to be a faster, more straightforward process to arrange than asset-based facilities, since there's no need to assess stock, invoices or other collateral before funds can be released.