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Invoice Finance vs Overdraft: What’s the Difference for UK Businesses?

  • Writer: Rachel Craft
    Rachel Craft
  • Sep 10
  • 2 min read

Need some extra cash for your business? Invoice finance and overdrafts are two popular ways to keep your cash flow ticking over, but they’re quite different. Let’s break it down in simple terms to help you pick the right one.


What’s Invoice Finance?

With invoice finance, you get quick cash by selling your unpaid invoices to a lender. They’ll give you most of the invoice value—usually 70-90%—within a few days. Once your customer pays up, you get the rest, minus a fee. It’s great if your clients take ages to pay or your cash flow’s a bit up and down.


What’s an Overdraft?

An overdraft is like a safety net on your business bank account. It lets you spend more than you’ve got, up to a set limit. You only pay interest on what you use, but it’s repayable whenever the bank says so. It’s handy for covering short-term stuff like bills or surprise costs.


Pound notes

How Are They Different?

  1. What They’re For - Invoice finance unlocks money stuck in your unpaid invoices, so it’s perfect if you’ve got big invoices or slow-paying customers. An overdraft isn’t tied to anything specific—you can use it for anything from payroll to fixing a broken van.

  2. Costs - Invoice finance comes with fees, the exact cost depends on your invoices and your clients’ credit. Overdrafts charge interest on whatever you’re overdrawn, and the rates can be steep. You might also get hit with setup or renewal fees.

  3. Paying It Back - Invoice finance sorts itself out when your customers pay their invoices, so it fits your sales cycle. Overdrafts don’t have a set repayment plan, but the bank can ask for the money back anytime, which could be tricky if you’re tight on cash.

  4. Growth Potential - Invoice finance grows with your sales—bigger invoices mean more cash. Overdrafts have a fixed limit, so you might need to renegotiate if your business takes off.


Which One’s Right for You?

Go for invoice finance if late payments are holding you back or you want cash tied to your sales. Pick an overdraft if you need flexible funds for unexpected costs. Check the costs and how your business is doing before you decide.


To discuss the funding options available to your business. Please do not hesitate to contact us on 0161 280 4220 or lynnew@regencyfactors.com



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