Invoice finance

Selective invoice finance: funding single invoices when you need to

Fund one large invoice without tying up your whole sales ledger. How selective invoice finance works, what it costs, who qualifies and when it fits.

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In short

Selective invoice finance suits a business that only occasionally needs cash tied up in a large invoice, such as a big order for a customer on 60 or 90-day terms.

You pay more per invoice than with a whole-ledger facility, but there is usually no long-term contract or minimum fee. If you find yourself funding invoices every month, factoring or invoice discounting is likely to work out cheaper.

About selective invoice finance

Selective invoice finance lets you raise cash against individual unpaid invoices of your choice.

Selective invoice finance lets you raise cash against individual unpaid invoices of your choice, instead of committing your whole sales ledger to a facility. It is for B2B businesses that are usually fine for cash but occasionally hit a gap: a big order to deliver, a major customer on long terms, or a seasonal push. You receive most of the invoice value upfront and the rest, minus fees, when your customer pays.

It is also known as single invoice finance, spot factoring or selective invoice discounting; the names describe the same idea. Smart Funding Solutions compares selective invoice finance providers on its panel to find one that suits your invoices, customers and preference on confidentiality.

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A transaction we arranged

£150,000

Main contractors slow to pay. £150K released from selected invoices.

A specialist subcontractor wanted cash from a few large invoices without putting its whole sales ledger on a factoring facility.

Read the transaction

Sector: Construction
Structure: Selective invoice finance
Outcome: Completed

How selective invoice finance works

Choose the invoicepick one or more unpaid invoices to business customers, often larger ones.
Lender checksthe provider assesses the invoice and, above all, your customer's creditworthiness.
Receive the advancethe provider advances an agreed percentage of the invoice value.
Customer paysyour customer settles the invoice on its normal terms.
Receive the balancethe provider releases the remaining amount, less its fees.

Once your account is set up, you can usually fund further invoices as and when you need to.

A simple example

A packaging supplier wins an order from a national retailer on 90-day terms. It needs to buy materials and pay staff now. Rather than signing a whole-ledger contract, it funds just that invoice: the advance pays for materials and wages, and when the retailer pays in three months the provider releases the balance, less its fee. The rest of the supplier's customers are untouched.

When selective invoice finance makes sense

You have won a large order or contract and need cash to deliver it.
A major customer has long payment terms.
Your business is seasonal and only needs help at certain times.
You want to try invoice finance before committing to a full facility.
You want to keep most of your sales ledger free of any finance arrangement.

Costs

Pricing is usually a fee based on the invoice value and how long the invoice is outstanding, sometimes with a set-up fee. Costs depend on your customer's credit strength, invoice size, payment terms and your sector. Compare the total cost per invoice, not just the headline fee; our guide to comparing invoice finance providers lists what to check.

Recourse and non-recourse

With a recourse arrangement, you must repay the advance if your customer does not pay. A non-recourse arrangement includes bad debt protection, so the provider carries the loss if a covered customer becomes insolvent, usually at extra cost and subject to conditions.

Who qualifies for selective invoice finance?

You can usually qualify for selective invoice finance if you are a UK business invoicing other creditworthy businesses on credit terms for work that is complete and undisputed; the strength of the customer you are invoicing matters more than the size or age of your own business.

UK sole traders, partnerships and limited companies can apply. Providers typically look for:

Invoices to creditworthy business customers for goods or services already delivered.
A trading history and turnover that meet their criteria (these vary by provider).
Clear invoicing and records, with no disputes or contra accounts on the invoices being funded.

Because the provider relies mainly on your customer's ability to pay, selective invoice finance can be available where your own credit history is imperfect.

Security and guarantees for selective invoice finance

The invoices you fund are the main security: you assign each chosen invoice to the provider, which then has the right to collect it, so property is rarely needed.

Providers usually ask the directors to give warranties that each invoice is genuine, for completed work and free of disputes or set-off, and some back this with a personal indemnity or guarantee. If your bank or another lender already holds a debenture over the company, it normally has to agree to release the funded invoices, often through a deed of waiver, before the provider will advance. Our guide to debentures and fixed and floating charges explains why that consent matters.

How long does selective invoice finance take?

Setting up the account and funding your first invoice typically takes from a few working days to around two weeks, because the provider has to verify your business, check your customer's credit and often confirm the invoice with that customer.

Once the account is open, further invoices to approved customers are often funded within a day or two of being uploaded and verified. What slows things down is usually a new customer the provider has not seen before, missing proof of delivery, a dispute or contra account on the ledger, or waiting for an existing lender to sign a waiver. Having the contract, purchase order and signed delivery note to hand from the start keeps the first drawdown moving.

Alternatives to selective invoice finance

If funding chosen invoices one at a time does not suit, the closest alternatives are a whole-ledger invoice facility or a loan that is not tied to individual invoices.

Invoice factoring, where the funder advances against your whole ledger and runs credit control, which usually costs less per invoice for regular use.
Confidential invoice finance, if you want customers to keep paying you directly.
Purchase order finance, if you need cash before the goods are delivered and the invoice raised.

If selective finance is not the right fit, alternatives also include an unsecured business loan or a revolving credit facility.

Checklist

Documents to have ready

A copy of the invoice and the purchase order or contract behind it.
Proof of delivery or sign-off for the work.
Your customer's details and payment history with you.
Recent business bank statements and your latest accounts.

Advantages and disadvantages

Advantages	Disadvantages
Fund one invoice or several, only when needed	Higher cost per invoice than a whole-ledger facility
Usually no minimum term or whole-ledger commitment	The first invoice takes longer while the provider completes checks
Many providers let you keep managing your own collections	Invoices must be to businesses on credit terms, not consumers
The invoice is the main security, so property is not usually needed	Invoices to customers with weak credit may be declined

Side by side

Compare your options

How the main business finance structures work. Lenders set their own terms, so treat this as a guide to the questions to ask.

Option	How you repay	Security	Often used for
Unsecured business loan	Fixed instalments, usually monthly	No charge over assets; a personal guarantee is usually required	Growth, stock, tax bills and cash flow
Secured business loan	Fixed instalments, often over a longer term	A charge over property or other assets	Larger sums, property and refinancing
Revolving credit facility	Interest on what you draw; repay and redraw	Varies by lender and case	Recurring or uneven cash flow gaps
Merchant cash advance	A share of future card takings	No charge over assets	Card-taking businesses with uneven months
Asset finance	Regular payments over the life of the asset	The asset being financed	Equipment, vehicles and machinery
Invoice finance	Settled as customers pay their invoices	Your unpaid invoices	Businesses waiting on customer payment

General information only. Every lender has its own criteria, and all finance is subject to status.

How it differs from whole-ledger invoice finance

	Selective invoice finance	Factoring or discounting
Invoices funded	Only those you choose	Usually your whole sales ledger
Commitment	Typically no long-term contract	Often minimum terms and notice periods
Cost per invoice	Usually higher	Usually lower overall for regular use
Often suits	Occasional or one-off cash needs	Ongoing, regular funding

Our invoice finance hub explains factoring and discounting in full. If you find yourself funding invoices every month, a whole-ledger facility may work out cheaper.

The broker’s view

How we help

We look at the invoice, your customer and how often you expect to use the facility, then approach providers that fund that kind of debt and compare their fees, notification terms and recourse. The provider carries out its checks and decides whether to fund. When you have an invoice in mind, you can discuss your requirement online.

FAQs

Questions clients ask

Will my customer know I'm using selective invoice finance?

It depends on the provider. Some notify your customer and ask them to pay into a provider-controlled account; others offer confidential arrangements where you keep managing collections. Ask how notification works before you choose a provider, particularly if the customer relationship is sensitive or the contract restricts assigning debts.

Can a sole trader use selective invoice finance?

Yes, some selective invoice finance providers work with sole traders and partnerships, as long as the invoice is to a creditworthy business customer. The provider focuses mainly on the customer who will pay, but it will still check your identity, credit history and invoicing records. Fewer providers serve sole traders than limited companies. Our page on sole trader loans covers other options if invoice funding does not fit.

Can I use selective invoice finance on an overdue invoice?

It is usually difficult, because most providers only fund invoices that are within their normal payment terms. An overdue invoice suggests the customer may be slow, in dispute or in difficulty, which is exactly the risk the provider is pricing. If a customer regularly pays late, raise it before you invoice so the provider can assess them. For older debts, our guide to aged debt funding covers other approaches.

Can I use selective invoice finance for public sector invoices?

Yes, invoices to councils, NHS bodies and other public sector customers are often well suited to selective invoice finance, because the credit risk of the payer is low. Providers will still check the contract, the purchase order process and how invoices are approved, as public bodies can have strict paperwork and payment timetables. A rejected or queried invoice will delay the balance payment.

Can I use selective invoice finance alongside a bank loan or overdraft?

Often yes, but your existing lender may need to agree. If your bank holds a debenture over the business, it may have a charge over your debts, and the selective invoice finance provider will usually ask for a waiver or consent before funding. Checking this early avoids delays when you need the money. Our invoice finance guide explains how different facilities fit together.

Official guidance

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