You’ve won the contract. Three months of work, invoiced monthly in arrears. Your contractors need paying in two weeks.
This is the moment when invoice finance stops being theoretical and starts mattering. The contract’s real, the work schedule’s fixed, and the gap between when you need to pay people and when your client pays you isn’t something you can negotiate away.
The question isn’t whether you need funding. It’s which type makes sense when you’re not looking to finance every invoice you raise – just the occasional large one that creates a timing problem. So how do you fund a large one off invoice?
The Three Options That Actually Apply
When you’re looking at a one-off large invoice – or a short series tied to a specific contract – three types of invoice finance come up: selective invoice finance, factoring, and invoice discounting.
They all advance cash against unpaid invoices. The difference is in how they work, what they cost, and whether they make sense for occasional rather than ongoing use.
Selective Invoice Finance
This is funding on the invoices you choose. You’ve got a £60,000 invoice from a three-month contract with a multinational. You want to advance that one. Not the £3,000 invoices from your regular clients that get paid in two weeks anyway.
A health and safety consultancy came to us in exactly this position. Large contract, multinational corporation, work invoiced monthly in arrears. The contract was real but the payment terms created a problem – they had contractors to pay and creditors to keep current before the client paid them.
We arranged selective invoice finance. They chose which invoices to advance, typically the large monthly invoices from that contract. The facility gave them enough to pay contractors on time and keep creditors up to date without waiting sixty days for the multinational’s payment process to complete.
Similar situation with a solar panel cleaning company we worked with. They handled regular commercial work throughout the year – shopping centres, office blocks, monthly or quarterly contracts that ticked along. But twice a year they had large contracts with solar farms. Two invoices, each around £45,000, both with 60-day payment terms. The rest of their work didn’t create funding pressure, just those two large jobs annually.
Selective invoice finance meant they could draw funds against those specific invoices when they came in, cover the equipment hire and labour costs, then leave the facility alone for the next five months. No ongoing commitment. No monthly fees when they weren’t using it.
The cost is higher per invoice than ongoing facilities – you’re paying for flexibility. But if you’re only using it three or four times a year on specific contracts, the total cost often makes more sense than committing to a twelve-month factoring agreement you don’t need.
Invoice Factoring
Factoring is more structured. You’re committing to an ongoing facility where the majority – usually 80% or more – of your sales ledger goes through the arrangement.
The finance company advances you a percentage of each invoice value immediately, typically 70-90%. They also take over your credit control, chasing payment from your customers. When the customer pays, you receive the remaining balance minus fees.
This works well if you’ve got consistent invoicing across multiple clients and you want to outsource the credit control function. The costs per invoice are lower than selective finance because you’re giving the lender volume and a longer relationship. Well, not quite – the fee structure rewards volume.
It doesn’t work as well for one-off large invoices unless you’re happy to put your entire ledger through the facility. Most factoring agreements run for a minimum term – usually twelve months – and include minimum volume requirements.
If you’ve landed one large contract that’s created a temporary funding need, factoring typically means over-committing to solve a short-term problem. For the solar panel company, putting their entire ledger through factoring to solve a problem that only existed twice a year would have meant twelve months of fees and their regular clients dealing with a third party chasing payment – neither of which made sense.
Invoice Discounting
Discounting sits between the other two. You get an advance against your invoices – often a higher percentage than factoring – but you keep control of your own credit control. Your customers don’t know you’re using invoice finance.
It’s confidential, which matters if you’re concerned about how funding arrangements look to clients. But like factoring, it’s generally structured as an ongoing facility with minimum terms and turnover requirements.
Most lenders want to see consistent invoice volumes – £500,000+ annual turnover is common, though some specialist lenders go lower. The facility works as a revolving line of credit against your debtor book.
For a business with occasional large invoices and otherwise manageable cash flow, discounting often means maintaining a facility you’re not using most of the time. The monthly management fees continue whether you’re drawing funds or not.
Which One Makes Sense for Occasional Large Invoices
Selective invoice finance is built for this situation. You use it when you need it. You don’t commit to ongoing minimums or put your whole ledger through the facility.
If the large invoice is genuinely occasional – maybe you land two or three significant contracts a year that create timing pressure, but your regular work doesn’t – selective finance gives you the option without the overhead of maintaining a facility you’re only using 15% of the time.
Factoring and discounting make more sense when your funding need is ongoing. If you’re consistently raising invoices across multiple clients and the cash flow timing is a permanent feature of how your business operates, the lower per-invoice costs and structured facilities work better. You’re paying for the service anyway, so using it across your whole ledger becomes efficient.
The health and safety consultancy only needed selective finance for the large multinational contract. Their regular clients – smaller firms paying £2,000 to £8,000 invoices – were on shorter terms and the cash flow worked. The solar panel cleaning company was the same – two large invoices a year needed funding, the rest of the business ran fine. Committing to factoring or discounting would have meant paying for a facility they didn’t need for 90% of the year.
The Practical Decision Framework
Ask yourself how often this happens. If it’s twice a year when you land a contract above your normal invoice size, selective finance probably fits. If it’s most months because your customer base has extended payment terms and you’re constantly carrying receivables, factoring or discounting starts making more sense.
Look at whether you want to hand over credit control. Factoring means the finance company chases payment. Some businesses prefer that. Others want to maintain direct relationships with customers, particularly if the customer base is small or the relationships matter for repeat work.
Check whether confidentiality matters. If your customers seeing a third party involved in collections would create questions you’d rather not answer, factoring’s out. Discounting or selective finance keep the arrangement between you and the lender.
And work out the actual cost across a year. Selective finance costs more per invoice but if you’re only using it four times, compare that total cost against twelve months of management fees on a discounting facility you’re barely using.
Most businesses I’ve worked with on occasional large invoices find that selective finance solves the immediate problem without creating a structure they don’t need. The flexibility costs more per transaction, but the total annual cost ends up lower because you’re not paying for a facility sitting unused.
Getting It Arranged
Selective invoice finance is usually quicker to arrange than ongoing facilities. Lenders want to see the invoice, confirm the customer’s creditworthy, and verify the work’s been done or the goods delivered. If the customer’s a recognisable name – like the multinational in the consultancy’s case or the solar farm operators – approval can happen in a few days.
You’ll typically get 70-85% of the invoice value advanced immediately. The remaining balance, minus fees, comes through when your customer pays. Fees vary but expect 1.5-3% of the invoice value for the service plus interest on the funds you’ve drawn.
For factoring or discounting, setup takes longer. Lenders review your whole ledger, check customer concentration, assess historic payment patterns. Expect two to four weeks from application to facility in place, sometimes longer if the debtor book’s complex.
The key is matching the funding structure to how often you actually need it. One-off or occasional large invoices don’t need permanent facilities. Selective finance exists precisely for this – funding when it makes the difference, nothing when it doesn’t.
Frequently Asked Questions
Q: How quickly can I get funds from selective invoice finance?
A: If the invoice is raised and the customer’s credit checks out, you can usually see funds within a few days. The lender needs to verify the invoice is genuine, the work’s completed, and your customer is creditworthy. With a recognisable customer – a large corporation or established business – this moves quickly. Most of the businesses we work with see funds in three to five working days once the invoice is submitted.
Q: Will my customer know I’m using invoice finance?
A: With factoring, yes – the finance company takes over credit control and your customer deals with them for payment. With selective invoice finance and discounting, it depends on the arrangement. Many selective finance facilities are confidential, meaning your customer pays you directly and doesn’t know a lender’s involved. If customer relationships matter and you’d rather they didn’t know, ask specifically about confidential facilities when you’re comparing options.
Q: What if my customer doesn’t pay the invoice?
A: Most invoice finance is recourse funding, which means if your customer doesn’t pay, you’re responsible for repaying the advance. The lender will typically give the customer 90 days before asking you to buy back the invoice. Some lenders offer non-recourse facilities where they take the credit risk, but these cost more and usually only apply to very creditworthy customers. This is why lenders check your customer’s credit before approving the advance.
Q: Can I use invoice finance if I’ve only been trading for a year?
A: It’s harder but not impossible. Most lenders want to see an established trading history – typically two years – and consistent invoicing patterns. Selective invoice finance can be more accessible for newer businesses if the customer is creditworthy and the invoice is substantial. If you’re a startup that’s landed a contract with a well-known corporation, some lenders will consider that based on the customer’s strength rather than your trading history.
Q: How much does selective invoice finance actually cost?
A: You’re usually looking at a service fee of 1.5-3% of the invoice value plus interest on the funds you’ve drawn. So on a £50,000 invoice advanced at 80%, you’d pay perhaps £750-£1,500 in fees plus interest – which might be another £200-£400 if the customer pays within 60 days. Total cost around £1,000-£2,000 to access £40,000 immediately rather than waiting two months. Whether that’s worth it depends on what you need the cash for and what not having it would cost you.
Q: What’s the difference between invoice finance and a business loan?
A: Invoice finance is secured against specific unpaid invoices – you’re borrowing against money customers already owe you. A business loan is typically secured against company assets or personal guarantees and gives you a lump sum to repay over time. Invoice finance costs are tied to how quickly your customers pay. Loans have fixed repayment schedules regardless of when cash comes in. For short-term cash flow timing issues, invoice finance often makes more sense because you’re only paying for the period you need the funds.
About Andy Bissett
Andy Bissett is the founder of Shadowfax Funding Solutions, working with established UK businesses on invoice finance and commercial funding. Twenty years in commercial banking – including specialist invoice finance roles at RBS, Yorkshire Bank, and Aldermore – taught him that most businesses don’t need more products, they need someone who understands how lenders actually make decisions. If you’re looking at a large invoice and trying to work out whether selective finance, factoring, or discounting makes sense for your situation, we can walk through the options without the sales pitch.