Invoice finance advances you cash against unpaid customer invoices, so funding grows with your sales and is repaid as customers pay. A working capital loan provides a fixed amount repaid over a set term. Invoice finance suits businesses that invoice other businesses on terms, while a working capital loan suits a defined, one-off need.
How does invoice finance work?
You issue an invoice to your customer. The finance provider advances a large portion of the invoice value straight away, and the balance, less fees, is released when the customer pays. Because the facility is tied to your debtor ledger, the available funding rises and falls with your sales.
How does a working capital loan work?
The lender provides a lump sum, secured or unsecured, which you repay in regular instalments over an agreed term. The amount and repayment schedule are fixed at the outset, which makes budgeting simple but means the facility does not flex with your sales.
How do they compare?
The right fit usually comes down to how your cash flow behaves.
- Best for: invoice finance suits B2B businesses with long payment terms, a working capital loan suits a specific, defined need
- Flexibility: invoice finance scales with sales, a term loan is fixed
- Eligibility: invoice finance relies heavily on your customers' credit quality, a term loan relies more on your own trading and security
- Repayment: invoice finance is repaid from customer payments, a term loan is repaid from your cash flow in instalments
Can a business use both?
Yes, though some lenders restrict layering facilities over the same assets. A broker can structure the combination so the facilities do not conflict, for example invoice finance for the ledger and equipment finance for a separate purchase.
Frequently asked questions
It is a form of finance rather than a traditional term loan. The provider advances funds against your invoices and is repaid when customers pay, so the facility moves with your sales.
Related
General information only, not financial advice. Lender criteria vary and approval is at the lender's discretion. Finstead is a broker, not a lender. Last updated 2026-10-29.