Invoice Finance Glossary

Plain-English definitions of UK invoice finance terms. If you come across jargon in our guides or on provider websites, look it up here.

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Business Debt Consolidation Core Concepts Costs Finance Types Financial Metrics Legal Operations Risk Management Sectors

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Business Debt Consolidation

Arrangement fee: A one-off fee charged by a lender for setting up a business loan. Also called an origination fee or facility fee. Typically 1–3% of the loan amount. On a £100,000 consolidation loan, a 2% arrangement fee is £2,000. Some lenders add this to the loan balance (meaning you pay interest on it throughout the term); others require it upfront on drawdown.; See also: What Does Consolidation Actually Cost?
Business debt consolidation: The process of combining multiple business loans and credit facilities into a single loan with one monthly payment, one lender, and (usually) one interest rate. Common debts included are term loans, business credit cards, overdrafts, merchant cash advances, and Bounce Back Loans. The goal is typically to simplify repayments, reduce monthly outgoings, or lower the total interest cost.; See also: What Is Business Debt Consolidation?, Consolidation Calculator
Bounce Back Loan (BBL): A government-backed loan scheme launched in May 2020 to support UK businesses during the COVID-19 pandemic. Loans of £2,000–£50,000 were available at 2.5% fixed interest, repayable over up to 10 years with no early repayment penalty. Bounce Back Loans can typically be included in a business debt consolidation, though the 2.5% rate is likely lower than any consolidation loan rate — so including a BBL in a consolidation may increase the interest you pay on that portion of the debt.; See also: Too Many Business Loans
County Court Judgement (CCJ): A court order issued when a business or individual fails to repay a debt and the creditor takes legal action. CCJs are recorded on your credit file for 6 years and significantly affect your ability to obtain new credit. A satisfied CCJ (one that has been paid) is treated more favourably by lenders than an unsatisfied one. Specialist business lenders may still consider applications from businesses with CCJs, particularly if they are old, small, or if business property is available as security.; See also: Consolidate With Bad Credit
Company Voluntary Arrangement (CVA): A formal, legally binding arrangement between a company and its creditors to repay debt over a fixed period — typically 3–5 years — at reduced or restructured payments. Requires approval from 75% of creditors (by debt value) and must be administered by a licensed insolvency practitioner. A CVA allows a business to continue trading while repaying its debts, and protects it from enforcement action by creditors during that period. Different from debt consolidation — a CVA is a formal insolvency procedure, not a new loan.; See also: Too Many Business Loans
Director's personal guarantee: A personal commitment from a company director to repay a business loan if the company cannot. Most business lenders require a personal guarantee, which means if the business defaults, the lender can pursue the director's personal assets (including their home, if not protected). Directors should take independent legal advice before signing a personal guarantee.; See also: What Is Business Debt Consolidation?
Early repayment charge (ERC): A penalty charged by a lender when you repay a fixed-rate loan before its agreed end date. ERCs compensate the lender for the interest income they will not receive. For business term loans, ERCs are typically expressed as 1–3 months of interest. Bounce Back Loans have no ERC. Merchant cash advances are structured differently — because the factor rate is applied upfront, the "ERC" is effectively the full outstanding balance. Always obtain a settlement figure from each existing lender before proceeding with consolidation.; See also: What Does Consolidation Actually Cost?
Factor rate: A pricing mechanism used by merchant cash advance providers. Instead of an interest rate, a factor rate (e.g., 1.3) is multiplied by the amount advanced to give the total repayment amount. A factor rate of 1.3 on a £20,000 advance means you repay £26,000 in total — regardless of how quickly you repay. Expressed as an APR, factor rates typically equate to 40–150%+ depending on repayment speed. Early repayment does not reduce the total amount owed in most MCA agreements.; See also: How to Get Out of a Merchant Cash Advance
Merchant cash advance (MCA): A form of business finance where a provider advances a lump sum in exchange for a percentage of future card or payment terminal takings. Repayments come automatically from daily revenue rather than fixed monthly payments. Priced using a factor rate rather than an interest rate, which can equate to very high APRs. MCAs are not regulated by the FCA in the same way as loans. They can typically be included in a business debt consolidation loan.; See also: How to Get Out of a Merchant Cash Advance, Factor rate
MCA stacking: The practice of taking a second or third merchant cash advance while still repaying the first. Each MCA takes a percentage of daily card takings, so multiple concurrent MCAs can drain a significant proportion of revenue — sometimes to the point where the business cannot cover basic operating costs. MCA stacking is a common route into financial difficulty and should be avoided. If you are already stacking MCAs, seek advice from Business Debtline (0800 197 6026) before taking on further debt.; See also: How to Get Out of a Merchant Cash Advance
Secured business loan: A business loan backed by collateral — typically business or personal property. Because the lender has a legal charge over the asset and can sell it if the loan is not repaid, secured loans carry significantly lower interest rates than unsecured loans. For business debt consolidation, secured loans typically carry 8–12% APR versus 12–18%+ for unsecured. The risk to the borrower is that if the loan is not repaid, the secured asset (including your home if used as collateral) may be repossessed.; See also: What Is Business Debt Consolidation?
Settlement figure: The exact amount required to fully repay and close a loan or credit facility today. For consolidation purposes, you need a settlement figure from each existing lender before a consolidation loan can be arranged — the new lender will pay each settlement figure directly to your existing lenders on completion. Settlement figures may include early repayment charges and are typically valid for 28–30 days from the date of issue.; See also: What Does Consolidation Actually Cost?
Unsecured business loan: A business loan with no collateral attached. The lender relies on the creditworthiness of the business and directors (usually via a personal guarantee) rather than a charge over an asset. Unsecured consolidation loans typically carry higher interest rates than secured loans (12–18%+ APR) because the lender has less protection if the business cannot repay. Most business consolidation loans under £100,000 are arranged on an unsecured basis.; See also: What Is Business Debt Consolidation?, Secured business loan

Core Concepts

Advance rate: The percentage of an invoice value that a finance provider advances to you immediately. Typically ranges from 70-90% depending on your sector, customer creditworthiness, and finance type. For example, an 85% advance rate on a £10,000 invoice means you receive £8,500 within 24 hours, and the remaining £1,500 (minus fees) when your customer pays.; See also: Invoice Finance Calculator, What Is Invoice Finance?
Debtor: A customer who owes you money for goods or services you have supplied. In invoice finance, your "debtors" or "debtor book" refers to all customers who have outstanding invoices. The creditworthiness of your debtors directly affects your advance rates and the cost of invoice finance.
Invoice finance: An umbrella term for financial products that allow you to release cash tied up in unpaid invoices. Instead of waiting 30, 60, or 90 days for customers to pay, a provider advances you 70-90% of the invoice value within 24 hours. Main types: factoring (provider manages collections), discounting (you manage collections), and selective/spot (choose individual invoices). Not regulated by the FCA in the UK.; See also: What Is Invoice Finance?, Invoice Finance Calculator

Costs

Discount charge: Interest charged on the cash advanced to you, calculated daily from the date you receive funds until your customer pays. Expressed as Bank of England base rate plus a margin (typically 2-5% over base rate). For example, at 4.5% base rate + 3% margin = 7.5% annual discount charge. The longer your customer takes to pay, the higher the discount charge.; See also: Invoice Finance Calculator, How Much Does Invoice Finance Cost?
Factoring fee (service fee): A percentage of your annual turnover charged by the provider to cover administration, credit checks, and (with factoring) collections management. Typically 0.5-3% of turnover depending on your sector, turnover size, and whether you use factoring or discounting. Charged monthly or quarterly. Also called "service fee" or "discount fee" (confusingly, despite being different from the discount charge).; See also: How Much Does Invoice Finance Cost?
Service fee: See "Factoring fee". The percentage of annual turnover charged to cover administration and (with factoring) collections. Typically 0.5-3% of turnover. The service fee is charged regardless of how long customers take to pay, unlike the discount charge which accumulates daily.; See also: How Much Does Invoice Finance Cost?

Finance Types

Invoice discounting: A type of invoice finance where you receive an advance on your invoices but retain control of credit control and collections. Your customers are not aware of the finance arrangement — they pay you as normal, and you then settle with the provider. Cheaper than factoring (typically 0.2-1% of turnover) but requires you to manage collections yourself. Usually requires higher turnover (£250k+).; See also: What Is Invoice Finance?, Invoice Discounting Explained
Invoice factoring: A type of invoice finance where the provider advances you cash against your invoices AND manages credit control (chasing payment). Your customers are aware of the arrangement and pay the factoring company directly. More expensive than discounting (typically 0.75-3% of turnover) but saves you time on collections. The most common form of invoice finance for smaller businesses.; See also: Invoice Finance Calculator, What Is Invoice Finance?
Selective invoice finance (spot factoring): Invoice finance where you choose which specific invoices to finance, rather than submitting your entire turnover. Offers flexibility (only use it when you need cash) but costs more per invoice financed — typically 1.5-5% of turnover vs 0.75-3% for whole-turnover factoring. Also called "spot factoring" or "single invoice finance".; See also: Invoice Finance Calculator, Eligibility Checker
Whole turnover facility: An invoice finance arrangement where you submit all (or the vast majority) of your invoices to the provider, rather than selecting individual invoices. The most common and cheapest form of invoice finance. The provider funds your entire sales ledger on an ongoing basis. Typically requires 12-24 month contract commitment.

Financial Metrics

Debtor days: The average number of days it takes your customers to pay their invoices. Calculated as (accounts receivable ÷ annual revenue) × 365. If your debtor days are 60, it means customers take an average of 60 days to pay. Longer debtor days mean more cash tied up and higher discount charges with invoice finance.
Sales ledger: A record of all invoices you have issued to customers, showing which are paid and which are outstanding. Invoice finance providers assess the quality of your sales ledger — reliable customers with good payment history get better advance rates and lower costs. Also called "debtor book".

Legal

Assignment: The legal transfer of your right to collect payment on an invoice from your customer to the finance provider. When you factor an invoice, you assign the debt to the provider. Some customer contracts prohibit assignment without permission — always check your terms before using invoice finance.
Late Payment of Commercial Debts Act 1998: UK legislation giving businesses the right to claim statutory interest (8% + Bank of England base rate) and fixed compensation (£40-£100 per invoice) when commercial customers pay late. Many businesses don't claim, but you're legally entitled to. Statutory interest can be used to calculate the true cost of late payments vs the cost of invoice finance.; See also: Late Payment Calculator

Operations

Credit control: The process of chasing customers for payment, managing overdue invoices, and ensuring debts are collected. With factoring, the provider handles credit control for you. With discounting, you retain credit control and manage collections yourself. Factoring is more expensive because it includes this service.; See also: What Is Invoice Finance?, Invoice Factoring Explained
Notification (of assignment): Informing your customer that their invoice has been assigned to a factoring company and they should pay the factoring company directly, not you. With factoring, notification is standard. With confidential invoice discounting, there is no notification — the arrangement remains private.
Reserve account: An account held by the factoring provider containing the portion of invoice value not advanced to you (typically 10-25%). When your customer pays, the provider releases the reserve to you minus their fees. Acts as a buffer against bad debts and disputed invoices.

Risk Management

Bad debt protection: Insurance against customer non-payment, sometimes included with invoice factoring. If a customer becomes insolvent and cannot pay, bad debt protection means the provider absorbs the loss rather than you repaying the advance. Also called "non-recourse" factoring. More expensive than recourse factoring.; See also: Invoice Factoring Explained
Concentration limit: The maximum percentage of your total sales ledger that can be owed by a single customer. If one customer represents more than 30-40% of your turnover, some providers view this as high risk (if that customer fails, your business is in trouble). Concentration limits may reduce your advance rate or disqualify certain invoices from financing.
Non-recourse factoring: Factoring where the provider takes on the risk of customer non-payment. If your customer becomes insolvent and doesn't pay, you don't have to repay the advance. More expensive than recourse factoring. Typically only covers insolvency, not disputes — if the customer disputes the quality of work, you still repay the advance.; See also: What Is Invoice Finance?
Recourse: The standard form of invoice finance where you remain responsible for customer non-payment. If your customer doesn't pay (disputes the invoice, becomes insolvent, etc.), you must repay the advance to the provider. Most UK invoice finance is recourse. Cheaper than non-recourse because the provider takes less risk.

Sectors

CIS (Construction Industry Scheme): A tax deduction scheme for construction payments in the UK. Main contractors deduct 20% tax from subcontractor invoices and pay it to HMRC. Invoice finance providers can advance funds based on the gross invoice value, then receive the net amount (after 20% CIS deduction) when the contractor pays. The CIS deduction is your responsibility to account for with HMRC.; See also: Construction Sector
Retention: A percentage of an invoice value (typically 5-20%) held back by a customer until certain conditions are met — common in construction (held until defects period ends or project completion). Retentions cannot be advanced by invoice finance providers until they are released by the customer. High retentions (over 25%) can make work unsuitable for invoice finance.; See also: Construction Sector