Selective Invoice Finance
Guide to selective invoice financing (aka single invoice financing) and how it compares to invoice factoring and invoice discounting.
Updated: 22nd September 2025
Late payment for invoices is a major threat to SME cash flow. These accounts receivable bottlenecks can dry up liquid cash for otherwise profitable companies, making it difficult to meet liabilities.
This article looks at selective invoice finance (SIF), a remedy that can release cash from invoices in just 24 hours.
What is selective invoice finance?
Invoice discounting is a type of invoice finance that enables companies to use their invoices as security for a loan. Selective invoice financing is a variation of invoice discounting that allows companies to cherry-pick a few high-value, high-quality invoices to finance against. Other types of invoice discounting use the entire sales ledger rather than select specific invoices.
Financing against a single invoice would be known as single invoice finance. With invoice financing, also known as invoice discounting, you’re still in control of collection, but it’s now a secured asset against the loan.
Invoice financing isn’t to be confused with spot factoring, which is the sale of an invoice to a debt collection company.
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Comparison of the main UK invoice finance products
| Criteria | Selective Invoice Finance | Invoice Discounting | Invoice Factoring |
|---|---|---|---|
| Pick & choose invoices? | Yes. They only fund the invoices you nominate. | No. The full sales ledger is submitted. | No. The provider expects most or all invoices. |
| Typical contract length | Pay-as-you-go; no long-term lock-in | 12-month rolling facility | 12 to 24-month agreement is common |
| Advance released | 80% – 90% of the invoice (occasionally up to 95 %) | 80% – 95 % of ledger balance | 80% – 90% |
| Who chases your customer? | You retain credit control | You keep credit control | Funder handles credit control & collections |
| Will customers know? | Can be fully confidential; disclosed option available. | Generally confidential; debtors unaware. | Yes. The invoice factoring lenders notify debtors. |
| Typical fees | Typically 3% and 5% of the invoice | Administration fee plus a discounting fee, typically between 1.5% to 3% of the total value of the invoices | A single, discount flat fee of 3% -5% of the invoice amount |
| Minimum annual turnover | None / very low threshold | Usually £250K – £500K + | Typically over £100K |
| Best-fit businesses | Project-based or seasonal SMEs needing ad-hoc cash boosts | Larger, well-established firms with in-house credit control needing regular headroom | SMEs requiring working capital and outsourced credit control. Potentially no impact on credit score as it’s not a liability. |
How does selective invoice finance work?Â
The first step is to select which invoices you want to finance against. The amount you want to borrow is a significant factor in this decision, as it determines the value of the invoices you choose. You could opt for your highest value invoices from customers you know to be slow at paying. However, be aware that higher value invoices will incur more interest costs.
Submit your invoices to the loan provider along with any other documents they request. Upon approval, which could come after 1-3 days, the funds will be advanced within 24-48 hours.
You will then be liable to pay the SIF provider the value of the invoice and their fee at a later date. Repayment is flexible, but most pricing models require just one flat discount fee. Early payment is therefore not rewarded. But remember, most SIFs are recourse; if the customer never pays the invoice, you must still repay the advance. Unless it’s a non-recourse SIF (less common and more expensive), then choosing invoices from unreliable customers could be a credit risk.
Benefits of selective invoice finance
- Convert unpaid invoices to cash and overcome cash flow problems caused by slow payers
- Fund only specific invoices when cash is needed rather than committing your entire sales ledger
- Retain control and confidentiality over customer relationships, avoiding debt collectors used by factoring providers
- No long-term contracts or ongoing facility commitments
- Funding potential grows with sales receivables
- No additional or physical assets are used as security
- Cheaper than invoice factoring
- Accessible to start-ups who may otherwise struggle with creditworthiness, trading history and bank loans
- No need to rely on expensive overdrafts
Potential drawbacks
- The cost is slightly higher per invoice than securing your entire sales ledger
- Administrative effort involved in selecting the invoices
- Financing fees ultimately reduce profit margins
- Only available for B2B commercial invoices, not consumer sales
- Eligibility may depend on invoice values and the industry you operate in
- Risk of becoming dependent on financing rather than fixing collection issues
Eligibility
- Satisfactory credit and financial health
- B2B trading with a monthly turnover of typically £5K-£50K or higher
- Minimum trading history may still apply, often requiring 6-12 months with established customer relationships
- Credit terms of at least 30 days
- Individual invoices may need to be over £1,000 each to justify processing costs
- Credit-worthy debtors without known disputes or payment issues
- Cannot use other invoice financing or factoring on the same receivables
Typical business types using selective invoice finance
It’s common to see all forms of invoice financing within professional services where billing is in 30-90 day payment cycles. Some industries, like construction, can suffer from delayed payments which pushes them towards invoice financing. However, if delayed payments are too prevalent, it will deter many invoice finance lenders. In this case, businesses often opt for selective invoice discounting so as not to include the very slow customers.
Manufacturing, with its large orders and extended payment terms, is also a common sector that uses SIF, along with marketing agencies due to their irregular billing cycles.
Some other typical business types that use SIF include:
- Seasonal businesses that need cash injections
- Fast-growing start-ups that need flexible funding but lack access to traditional loans
- Project-based companies with high-value but irregular invoices
- Relationship-focused firms that prioritise customer confidentiality
- High-margin service providers who can absorb the costs
A perfect use case might be an ERP implementation consultancy. Projects can be upwards of £100,000, but timeframes are often irregular, and payments can usually be delayed. This caused cashflow issues as ERP providers frequently need to pay specialist contractors and license fees.
Selective invoice finance for SMEs enables them to access 80-90% of the invoice value quickly, all while keeping their clients happy and unaware of this arrangement. The funding helps deliver the project on time and avoids committing to long-term loans. Given that SaaS providers are often high-margin, they can typically afford the discount.Â
Other funding options like cash flow finance or revenue-based finance may be more suitable for some businesses.Â
Key factors when deciding which type of invoice finance to use
- Flexibility: Selective invoice discounting lets you access cash against a single invoice whenever cash flow pinches, so there is no need to tie up the whole ledger.
- Visibility: If keeping the facility invisible to customers is important for customer relations, consider selective invoice discounting or whole-ledger discounting. Factoring is disclosed and can lead to aggressive external debt collectors chasing up your clients.
- Cost: SIF carries the highest headline percentage per invoice, but it can be cheaper overall if you only need funding sporadically. Whole-ledger facilities are priced to suit businesses that draw funds continuously.
- Credit-control resource: Outsource it with factoring, keep it in-house with discounting, or use a SIF (discounting variant).
- Contract: Whole-ledger facilities typically require 6 to 12 month commitments, whereas SIF often has no long-term contracts.
Costs & fees explained
Selective invoice finance lenders use different fee models and typically employ one or two of the fee types below.
| Fee Type | Typical Range |
|---|---|
| Service/Admin Fee | Up to ~3% of the invoice value |
| Discount/Interest Rate | 1% – 5% of the invoice value |
| Combined Fee (service + interest) | 10% – 20% total, depending on the structure |
| Setup/Arrangement Fee | £100 – £500 one-off |
| Advance Rate | 80% – 95% upfront |
| Same-day funding / CHAPS | £15 – £30 |
Service / Admin Fees: These are charged as a percentage of each invoice advanced or sometimes as a fixed monthly amount. They usually do not exceed 3% of the invoice value.
Discount/Interest Rate: These are charged on the funds you receive, similar to interest, calculated daily or as a flat percentage (typically 1% to 5% of the invoice value).
Combined Fees: Many providers bundle the service and interest into a single percentage ranging from 10% and 20%.
Setup or One-off Fees: Some providers charge a one-time setup or arrangement fee, typically in the range of £100 to £500.
Advance Rate: The provider will advance between 80% and 95% of the invoice value upfront and the remaining balance is paid upon invoice settlement, minus the agreed fees.
Same-day funding: A small fee of £15-£30 is charged for same-day funding if available.
The term discounting comes from the idea that you’re discounting your invoices (i.e. receiving less income from them). This is why a flat-fee model is dominant, in which a fixed discount rate is applied as a one-off charge.
The lack of monthly interest means you gain more value when customers take longer to pay. However, there is a limit on payment terms and unreliable customers can land you in trouble if they take too long. The recourse period is often between 90 and 120 days. If the client hasn’t paid by this point, you need to find the funds and make the repayment to the invoice finance lender; otherwise, it will hit your credit report.
Tip: Costs usually higher per invoice than whole-ledger facilities but cheaper overall if you only need ad-hoc funding.
The repayment structure helps cash flow because it’s easier to predict, as the discount rate is pre-agreed.
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Selective invoice finance vs other business financing options
| Feature | Selective Invoice Finance | Full Factoring | Invoice Discounting | Overdraft | Loan | Merchant Cash Advance |
|---|---|---|---|---|---|---|
| Flexibility | High | Low | Medium | High | Low | Medium |
| Cost of borrowing | Higher | Lower | Lower | Medium | Medium | High |
| Commitment | Pay-as-you-go | Ongoing | Ongoing | Ongoing | Fixed | Ongoing (sales-linked) |
| Client Awareness | Sometimes | Usually | Rarely | No | No | No |
| Advance Rate | 80% – 95% | 80% – 95% | 80% – 95% | Limit set | 100% | N/A (future card sales) |
| Best for | Occasional needs | Regular funding | Established SMEs | Short-term | Projects | SMEs with high proportion of card sales needing quick funding |
Comparison with other funding options
1. Full invoice factoring
- How it works: The Finance provider purchases your whole sales ledger (i.e. all or most invoices). They usually also manage collections.
- Costs: Lower average fees compared to SIF (service fee ~0.5% – 2% of turnover plus a discount rate ~2% – 3% APR equivalent).
- Pros: Predictable funding, outsourced credit control, scalable with business growth.
- Cons: Less flexibility (must include most or all invoices) and your clients paying the invoices may know about the factoring arrangement.
- Best for: SMEs with regular cash flow pressures and limited credit control capacity.
2. Invoice discounting
- How it works: Similar to factoring, but your business retains responsibility for collections, so your clients don’t need to know.
- Costs: Comparable to factoring, sometimes slightly cheaper as you handle credit control.
- Pros: Confidentiality, more control over customer relationships.
- Cons: Invoice discounting lenders often require stronger creditworthiness and established turnover.
- Best for: Larger SMEs with in-house finance teams and consistent invoicing.
3. Business overdraft
- How it works: Banks offering overdraft will allow your businesses to overdraw funds up to a set limit.
- Costs: Interest is typically between 7% and 12% APR plus arrangement/renewal fees.
- Pros: Flexible, quick access to cash.
- Cons: Can be reduced or withdrawn at short notice; often requires security/personal guarantees.
- Best for: Short-term, smaller funding needs.
4. Traditional business loan
- How it works: A fixed lump sum repaid in instalments over months or years.
- Costs: Fixed or variable interest (6% – 20% APR depending on risk).
- Pros: Predictable repayments, suitable for larger one-off needs.
- Cons: Less flexible, you pay interest on the whole amount even if not all is needed.
- Best for: Long-term projects or investments (not just cash flow gaps). Traditional loans. It may also be cheaper, but you’ll need stronger financials, longer trading history and a good credit score to get approved.
5. Merchant cash advance
- How it works: Funding is advanced based on future card sales, and repayments are taken as a percentage of daily transactions.
- Costs: High (factor rates often 1.1 to 1.5, equivalent APR 20% – 50%).
- Pros: Repayments flex with sales, unsecured.
- Cons: Expensive, only works for card-reliant businesses.
- Best for: Retail, hospitality, e-commerce with high card turnover.
Step-by-step application checklist
- Gather your latest company accounts, aged debtor list and bank statements.
- Gather a copy of the chosen invoice(s) plus proof of delivery/service completion.
- Present ID & proof of address of company directors.
- Sign the provider agreement electronically.
- Approval and funding together will take 2-5 days.
Selective invoice finance vs whole-ledger invoice finance
Selective invoice finance is particularly beneficial for individuals with sporadic cash flow, such as those with seasonal patterns, as it eliminates the need to pay service fees during quiet months. It’s also useful when you have mixed customer quality, so you can avoid including unreliable customers (e.g., slow-paying startups). Or, perhaps to help execute one-off large projects that have been invoiced.
Whole-ledger invoice finance is more suitable for those with a regular need for funding, such as recruitment agencies with consistent, large invoices. In these circumstances, it’s cheaper due to the lower discount rate.
Alternatives to consider
If you’re looking at SIFs, you likely have adequate revenue. Here are other revenue-based types of funding:
- Full Invoice Factoring
- Invoice discounting
- Merchant cash advances
- Asset or equipment finance
- Business credit cards
- Short-term revolving credit facilities
FAQs
What’s the difference between spot factoring and selective invoice finance?
Selective invoice finance is usually a form of invoice discounting, not factoring. The difference is therefore how collections are handled. You retain control over chasing invoices for SIF, while an external debt collector usually takes control of credit for spot factoring.
How quickly can I get funds?
Likely within 2 to 4 days. If everything goes right, approval can be next-day, and funding can follow the day after.
Will my customers know?
Most SIF is arranged as discounting, not factoring. This means that your customers will not know.
Will selective invoice finance be bad for my business's credit score?
his depends on your arrangement, but given that invoice discounting is structured as a secure loan, this could potentially affect your credit score if payments are missed.
Can I exit at any time?
Yes, SIF doesn’t involve long-term contracts – it ends when the financing is repaid.