Key takeaways

• Invoice finance advances cash against unpaid invoices:
  Typically 70 to 90% of invoice value within 24 to 48 hours
• Two main types:
  Factoring and discounting: Factoring is disclosed; discounting is confidential
• Selective invoice finance funds individual invoices:
  No need to commit your entire sales ledger
• Construction businesses pay slightly more than other sectors:
  Longer terms and retentions increase risk for lenders
• Not all providers work with construction:
  Specialist lenders understand applications for payment and retention

Construction businesses, and scaffolding contractors in particular, carry one of the most punishing payment gaps of any UK sector. You complete the work, raise the invoice, and then wait. Thirty days becomes sixty. Sixty becomes ninety. Meanwhile wages need paying, materials need buying and the next job needs funding.

Invoice finance is a way of unlocking the cash tied up in outstanding invoices before your clients pay them. Instead of waiting for the money to arrive, you access a percentage of the invoice value within 24 to 48 hours of raising it. This guide explains how invoice finance works, the types available, how it applies specifically to scaffolding businesses, and what to consider before setting up a facility.

What is invoice finance?

Quick answer
Invoice finance is a form of lending that uses your outstanding invoices as the basis for a cash advance. A finance provider advances 70 to 90% of the invoice value shortly after it is raised. When your customer pays, the provider deducts their fees and releases the remaining balance to you.

Key distinction
Invoice finance is a form of lending that uses your outstanding invoices as the basis for a cash advance. A finance provider advances 70 to 90% of the invoice value shortly after it is raised. When your customer pays, the provider deducts their fees and releases the remaining balance to you.

The flow is continuous rather than one-off. As you raise new invoices, they are added to the facility and further advances become available. As customers pay, the cycle closes and repeats. The result is a continuous flow of working capital that tracks your invoicing activity rather than lagging behind it by 30 to 90 days.

The main types of invoice finance

Invoice factoring

Quick answer
With invoice factoring, you sell your invoices to the finance provider (the factor), who advances a percentage immediately and takes responsibility for collecting payment from your customers. Your customers are aware a third party is managing the sales ledger.

• Immediate cash advance on raised invoices
• Factor manages collections: useful if you want to outsource credit control
• Your customers know a factor is involved (disclosed)

Invoice factoring is generally more accessible to smaller businesses and those with less formal credit control processes, because the factor effectively takes over that function. The cost reflects this additional service. For scaffolding businesses working primarily with larger main contractors who are familiar with factoring arrangements, the disclosed nature of the facility is often not a concern.

Invoice discounting

Quick answer
Invoice discounting works like factoring but is confidential. Your customers do not know a finance provider is involved. You retain control of collections yourself. Generally available to more established businesses with robust credit control.

• Immediate cash advance on raised invoices
• You retain control of customer relationships and collections
• Confidential: customers are not aware

Invoice discounting is preferred by businesses that want to maintain direct relationships with their customers and keep the financing arrangement private. It requires a more mature credit control function within the business, since you are responsible for chasing payment. Lenders typically require a higher level of turnover and trading history than for factoring.

Selective invoice finance

Selective (or spot) invoice finance lets you fund individual invoices rather than committing your entire sales ledger. You choose which invoices to advance against, rather than entering a whole-ledger arrangement. This is well suited to scaffolding businesses with a small number of large contracts who want to advance cash against a specific invoice without changing their overall approach to credit management.

Advance rates on selective facilities can be slightly lower than whole-ledger arrangements, but the flexibility is valuable for businesses that do not invoice frequently enough to justify a rolling facility, or that want to use invoice finance occasionally rather than as a permanent tool.

How invoice finance helps scaffolding businesses specifically

Closing the payment gap

The scaffolding sector’s payment terms, often 30 to 90+ days, create a structural gap between doing the work and being paid. Invoice finance closes that gap almost entirely. Instead of waiting for a main contractor to settle an invoice, you receive the majority of the value within 48 hours. For a business with £200,000 in outstanding invoices, that can mean immediate access to £140,000 to £180,000 in cash.

Dealing with retentions

Typically 5 to 10% of each invoice is withheld by the main contractor until the defects liability period ends, often 6 to 12 months after completion. Most invoice finance providers advance against the net invoice after retention rather than the gross value. Some offer retention finance as a separate product, advancing against future retention releases before the defects period expires. This is worth confirming with any prospective provider before setting up a facility.

Managing applications for payment

Scaffolding companies often raise applications for payment rather than traditional invoices, particularly on larger contracts. Not all invoice finance providers are comfortable with this. Specialist construction lenders understand the application for payment process and can fund against these in the same way as standard invoices. This is one of the key reasons why working with a specialist broker rather than approaching a general lender directly matters.

Funding growth automatically

Invoice finance grows with your business. As your invoicing increases, your available facility increases with it. This makes it particularly well suited to scaffolding businesses taking on larger contracts, because the finance needed to fund the work scales automatically with the work itself. Unlike a business loan with a fixed limit, there is no need to go back and renegotiate the facility as turnover grows.

How much does invoice finance cost?

Quick answer
Invoice finance involves two main costs: a service fee (typically 0.5 to 3% of turnover) and a daily discount charge on funds advanced (broadly similar to an overdraft rate). Construction businesses typically pay slightly more than other sectors due to longer payment terms and retention complexity.

The service fee covers the administration, credit control and management of the facility. The discount charge is an interest-like cost on the balance of funds advanced at any given time. Both are agreed upfront and are transparent in any quote you receive.

The right way to evaluate cost is to compare it against the alternative: the cost of not being able to take on a contract, the penalty and interest cost of a missed VAT payment, the cost of a business overdraft used to bridge the gap, or the operational cost of declining work because cash is not available to fund the start.

Who can access invoice finance?

Invoice finance is available to UK limited companies that invoice other businesses on credit terms. Main qualifying factors: you trade with other businesses on agreed payment terms; invoices represent completed work rather than deposits or advance payments; you have a reasonable spread of customers rather than a single debtor; and your minimum invoicing level is typically £50,000 to £100,000 per year for whole-ledger facilities. Selective invoice finance is available to businesses with lower volumes.

Construction note
Not all invoice finance providers work with construction businesses. The sector’s use of applications for payment, retention clauses and longer payment terms means specialist lenders are preferable. A broker who understands the sector can identify the most appropriate providers and negotiate better advance rates than a general lender would offer.