Invoice finance for businesses with bad credit

Cash flow is the lifeblood of every business, but for SMEs with bad credit, accessing traditional loans can be challenging. Invoice finance offers a practical solution, allowing businesses to unlock money tied up in unpaid invoices without relying on their credit history.

In this guide, we’ll explain how invoice finance works, who can use it, and why it’s one of the most accessible funding options for businesses struggling with poor credit.

What is Invoice Finance?

Invoice finance is a business funding method that turns unpaid invoices into immediate cash. Instead of waiting 30, 60, or even 90 days for customers to pay, a lender advances a percentage of the invoice value upfront.

Unlike a traditional loan, invoice finance is not a debt product. You’re simply accessing cash that’s already owed to you by your customers.

How does Invoice Finance work?

The process is straightforward and designed to fit seamlessly into your existing invoicing routine:

1. You issue an invoice to your customer as usual with payment terms (e.g., 30, 60, 90 days).

2. A lender advances a portion of the invoice (typically up to 95% of invoice value).

3. Once the customer pays, the lender releases the remaining balance, minus fees.

As the funding is linked directly to invoices, businesses can access cash flexibly and proportionally to their sales, helping to manage cash flow, cover operational costs, and support growth without taking on long-term debt.

Can I get invoice finance with bad credit?

Yes. Invoice finance is one of the few funding options available to businesses with bad credit.

Unlike traditional loans, lenders focus primarily on the creditworthiness of your customers rather than your personal or business credit history. This makes invoice finance an ideal solution for SMEs with County Court Judgments (CCJs), Individual Voluntary Arrangements (IVAs), late payments, or a low credit score.

Who can use Invoice Finance?

Invoice finance can be a practical solution for businesses of all sizes and structures, including limited companies, sole traders, and partnerships. It is particularly suited to businesses that:

• Sell goods or services to other businesses (B2B), rather than individual consumers.
• Issue invoices with payment terms (e.g., 30, 60, 90 days).
• Need flexible cash flow to cover operational costs, payroll, or growth projects.
• Have faced late payments, CCJs, IVAs, or have a low credit score.

Common sectors that use invoice finance include:

• Manufacturing
• Wholesale and distribution
• Construction
• IT and software services
• Marketing and creative agencies
• Recruitment agencies
• Logistics
• Professional services
• And many more

How Invoice Finance helps businesses with bad credit

Managing cash flow can be particularly challenging for businesses with poor credit, especially when customers take time to pay their invoices. Invoice finance offers a way to unlock working capital from unpaid invoices, helping businesses maintain day-to-day operations without relying on traditional borrowing. As the funding is linked to invoices rather than credit scores, it can remain accessible even where other finance options are limited.

Even if your business has poor credit, invoice finance can:

• Boost cash flow instantly: Access cash tied up in invoices without waiting for customers.
• Reduce stress from late payments: Focus on running your business instead of chasing invoices.
• Provide scalable funding: Funding grows as your invoice volume increases.
• Bypass credit history issues: Lenders focus on invoices, not personal or business credit scores.
• Help pay bills early: Unlocking cash early lets you pay suppliers and bills on time, helping build a stronger business credit profile.

Many SMEs are approved despite previous business loan rejections, CCJs, or limited borrowing history. Specialist invoice finance providers regularly work with businesses that traditional banks decline.

Types of Invoice Finance

Invoice Factoring

With invoice factoring, the lender advances cash against your invoices and manages payment collection from your customers on your behalf. This helps improve cash flow while reducing the time spent chasing late payments.

Invoice Discounting

Invoice discounting allows you to access cash from unpaid invoices while keeping control of your customer relationships. Your customers continue to pay you directly, and the funding remains confidential.

What are the costs and fees?

Invoice finance fees are transparent and are linked to your invoices, rather than fixed monthly repayments. Costs usually depend on the value of your invoices and how long your customers take to pay. Common fees include:

• Service fee: Covers the cost of setting up and managing the invoice finance facility.
• Discount fee: Charged based on the amount advanced and the time it takes for an invoice to be paid.

Should SMEs with bad credit consider invoice finance?

Invoice finance can be a useful cash flow solution for SMEs with poor credit, particularly for businesses that issue invoices to other businesses (B2B). It is available to a wide range of business structures, including sole traders, limited companies, and partnerships.

Unlike traditional business loans, invoice finance is not primarily assessed on the business owner’s credit history. Instead, funding is based on the value of outstanding invoices and the creditworthiness of the customers who are expected to pay them.

For businesses experiencing cash flow pressure due to late-paying clients, or for those that have been declined for conventional lending, invoice finance may provide access to working capital while waiting for invoices to be settled.