Selective Invoice Finance

What is selective invoice finance?

Selective invoice finance lets a business fund part of its sales ledger rather than all of it, choosing which customers or which invoices to finance instead of committing every invoice to a facility. The funder advances most of the value of whatever is funded, typically 70 to 90 per cent, with the balance following minus fees when the customer pays. In practice, lenders use the term in two different ways: some mean selected customer accounts funded on an ongoing basis, others mean individual invoices funded one at a time. Both exist, they are priced very differently, and knowing which lender means which is exactly what we sort out for you. See our glossary of invoice finance terms for the language funders use.

Selective, spot and single: the same words meaning different things

Invoice finance has a terminology problem, and this is where it bites hardest. Two lenders can both offer you "selective invoice finance" and mean genuinely different products, priced in genuinely different ways. It is worth ten minutes of your time to understand the difference, because it decides what the facility costs you.

Strictly speaking, the distinction runs like this. Selective means funding chosen customer accounts: you nominate which of your debtors go into the facility, those customers are funded on an ongoing basis, and the rest of your ledger stays outside it. Spot factoring and single invoice finance mean funding individual invoices, one transaction at a time, chosen as and when you need the cash. The British Business Bank, writing with UK Finance, draws the line in exactly that place: selective finances selected customer accounts, spot finances distinct invoices.

In the wider market, though, the terms are used loosely and often interchangeably, with many providers advertising "selective invoice finance" while describing invoice-by-invoice funding. Neither usage is wrong, exactly. They are simply different products wearing the same name, and nobody polices it.

Why the difference matters to your bank balance

Because the two are priced on completely different models.

Customer-account selective facilities are usually structured as factoring applied to chosen debtors. That means they are priced like factoring: a service fee based on your turnover, an ongoing agreement, and often credit control included, with the funder collecting from the customers inside the facility. Some lenders offering this model also provide CHOCCs arrangements, where you keep credit control yourself, and bad debt protection as an option.

Invoice-by-invoice spot facilities are usually priced per transaction: a single fee on each invoice funded, no service fee on turnover, and typically no ongoing commitment, so you pay nothing in the months you fund nothing.

The consequence is straightforward. If your need is continuous, funding two or three regular customers every month, the customer-account model will usually work out cheaper despite looking more committing. If your need is genuinely occasional, a few invoices a year, the per-invoice model will usually win despite its higher headline rate. Working out which camp you are in, and which lenders offer which, is the single most valuable thing a broker does on this product.

Which do you actually want?

Ask yourself one question: is the problem a customer, or a moment? If one or two customers cause all your cashflow pain, month in and month out, because they are big, slow and reliable, you want a selective facility built around those accounts. If your problem arrives occasionally, a seasonal squeeze, one large order, a single perm placement fee, you want spot or single invoice funding. Tell us which it is and we will match you accordingly. Tell us you are not sure and we will work it out with you, which is more common than you would think.

How selective invoice finance works

You raise an invoice to a business customer on credit terms as normal. If you want it funded, you submit it to the funder, who verifies it, usually a quick confirmation that the goods were delivered or the work completed, then advances the agreed percentage, often within 24 to 48 hours. When your customer pays, you receive the remainder minus the funder's fee. If you never submit another invoice, nothing happens and nothing is charged. There is no obligation to keep using the facility, which is the whole point.

When selective beats a whole ledger facility

A traditional factoring or invoice discounting facility funds your entire sales ledger, which is ideal for businesses with a constant working capital need. Selective invoice finance suits businesses whose need comes and goes. The classic cases look like this. A seasonal business that only feels the squeeze for three months a year. A project business landing one large order that would strain cashflow to deliver. A company with one slow-paying customer whose invoices cause all the trouble while everyone else pays promptly. A recruitment agency wanting to fund the occasional large permanent placement fee. A generally healthy business that would simply rather keep funders at arm's length and use finance as a tool rather than a way of life.

If your cashflow gap is constant across your whole customer base, a full ledger facility will usually be cheapest per pound funded, and we will tell you so. If it is constant but concentrated on one or two big customers, a customer-account selective facility is likely your answer. If it comes and goes, spot funding fits best. Our guides to invoice factoring and invoice discounting explain the whole-ledger alternatives.

What it costs, honestly

Pricing follows whichever of the two models your lender uses, so ask which one you are being quoted before comparing anything.

Per-invoice facilities are priced as a single fee on each funded invoice, calculated on the invoice value and how long your customer takes to pay. There is usually no ongoing service fee and no minimum usage, so the months you fund nothing cost nothing. Per pound funded it is the more expensive model, and that premium is the price of the flexibility.

Customer-account facilities are priced like factoring: a service fee calculated as a percentage of the turnover you put through the facility, plus a discount charge on the funds you draw, under an ongoing agreement. Per pound funded this is usually cheaper, and it often includes credit control on the accounts inside the facility, which has real value if you do not have that function in-house.

Neither is inherently better value. They suit different problems, and the difference between a good decision and an expensive one is knowing which you are being sold. Our invoice finance costs and rates guide breaks down every charge in both models, including the minimum fees and notice periods that only apply to the ongoing kind.

Who qualifies

The essentials are simple. You need to be a UK business selling to other businesses on credit terms, and the customer behind the invoice needs to be creditworthy, because the funder's real security is your customer's ability to pay. Beyond that, selective finance is unusually accessible. New businesses qualify, because a strong invoice to a strong customer is fundable whether your company is ten years or ten weeks old. Businesses with imperfect credit histories qualify for the same reason. Sole traders and partnerships are welcome with most providers alongside limited companies.

The catches worth knowing about

We would rather you heard these from us. First, the terminology: as above, always establish whether a quote is per-invoice or turnover-based before you compare it with anything else, because the two look nothing alike on paper. Second, no form of invoice finance protects a disputed invoice, and funders will decline invoices to weak or unverifiable customers, so selective funding cannot rescue a debt that was always going to go bad. Third, some providers set minimum invoice sizes, often around £5,000 to £10,000, so very small invoices may not be economical. And fourth, ongoing customer-account facilities carry the same small print as any factoring agreement, service fee minimums, notice periods and termination terms, none of which apply to true one-off spot funding. Reading the schedule matters more here than almost anywhere else in invoice finance, and it is a large part of what we do before recommending anyone.

Why use a broker for selective invoice finance?

The selective market is a mix of specialist platforms, fintech funders and traditional providers with selective products bolted on, all with different pricing models, minimums and appetites. Comparing them from the outside is genuinely difficult because few publish full pricing. We know the providers on our panel, what they charge and which invoices they like, so we can match you in one conversation rather than five applications. Our service is free to use. The provider pays our commission, and we will always tell you that arrangement exists.