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When invoice finance fits, and when it doesn't
Six ways to cover a working-capital gap, and six questions that separate them. The descriptions below are generic to each type of finance.
The Fkah entry describes the product as it is available today.
There is no option that always wins
For many businesses an overdraft against collateral they already have is cheaper over a year than invoice finance. A term loan suits an asset that lasts years. Equity is the only funding that can absorb a loss. What invoice finance does differently is move with your sales, price on your buyer's strength, and ask for no property collateral.
We will say so when another option is the better one. A page that claims to win every row is not a comparison.
Bank overdraftA running facility from your bank that you draw on when you need it and repay when cash allows.
- Speed
- Weeks to put in place; same-day to draw on once it exists.
- Collateral
- Usually required: property, cash cover or personal guarantees.
- Dilution
- None.
- Cost visibility
- A margin over a floating reference rate, plus arrangement and annual renewal fees.
- Scales with revenue
- The limit is reviewed annually and does not move with your sales during the year.
- Effect on your buyer relationship
- Nothing to do with your buyers.
When it is the better choiceOften the cheapest option if you already have a facility and collateral your bank accepts. Do not swap it for invoice finance just to move faster.
Term loanA single amount drawn once and repaid in fixed instalments over a set period.
- Speed
- Weeks to months, with a full credit assessment.
- Collateral
- Common, often alongside financial covenants.
- Dilution
- None.
- Cost visibility
- A repayment schedule known from day one. This is its clearest advantage.
- Scales with revenue
- No. The amount is fixed whether you grow or shrink.
- Effect on your buyer relationship
- Nothing to do with your buyers.
When it is the better choiceThe right tool for a long-lived asset: an expansion, equipment, a new branch — where the cost is spread over years.
Revenue-based financeAn advance repaid as a share of your daily revenue until an agreed total is reached.
- Speed
- Days, where your sales data can be read automatically.
- Collateral
- Usually none over property.
- Dilution
- None.
- Cost visibility
- A fixed repayment total rather than a rate over time, so the effective annual cost rises the faster you repay.
- Scales with revenue
- Yes. Repayment moves up and down with your revenue.
- Effect on your buyer relationship
- Nothing to do with your buyers.
When it is the better choiceSuits recurring-fee businesses and daily retail takings, especially where there are no approved invoices on corporate buyers to work with.
EquityCapital in exchange for a permanent share of the company.
- Speed
- Months, sometimes longer.
- Collateral
- None.
- Dilution
- Permanent. You give up a share of the company and a share of the decisions.
- Cost visibility
- No cash cost today; the real cost shows up later in the value of what you gave away.
- Scales with revenue
- Yes, but every round means giving up more.
- Effect on your buyer relationship
- Nothing to do with your buyers.
When it is the better choiceThe right tool for what debt cannot fund: growth-stage losses, or a project whose return is genuinely uncertain.
Your own fundsCovering the gap out of working capital or your personal account.
- Speed
- Same day.
- Collateral
- Nothing formal, but the risk sits directly on you.
- Dilution
- None.
- Cost visibility
- No fees. The cost is the order you could not take.
- Scales with revenue
- No. Its ceiling is what you have.
- Effect on your buyer relationship
- Nothing to do with your buyers.
When it is the better choiceNothing is cheaper when the cash is genuinely there and the gap is short. The problem starts when the business grows faster than your balance.
FkahAn approved invoice becomes cash today, and settles out of your buyer's payment on its usual date.
- Speed
- Registration finishes in one sitting and an invoice verifies in seconds. Published timings: [xxx].
- Collateral
- No property collateral. The approved invoice is the asset.
- Dilution
- None.
- Cost visibility
- One rate on the advanced amount, per invoice, shown in full before you confirm.
- Scales with revenue
- Yes. The more approved invoices you issue, the more can be financed.
- Effect on your buyer relationship
- Depends on the product: confidential receivables finance changes nothing for your buyer, and supplier-finance programmes are set up by the buyer itself.
When it is the better choiceFor the short gap between issuing an invoice and collecting it, where your buyer is stronger credit than you are. Not a substitute for a term loan or for capital.
The descriptions above are generic characterisations of each type of finance. They do not refer to any particular bank or funder, or to any specific product or rate. Check the terms of any actual offer before comparing on this basis.
Decided invoice finance fits you?
Work out the cost of an invoice, then request a quote.