Invoice Finance for Construction Companies: UK Guide
The short answer
Invoice finance lends you up to 80–90% of what a business client owes you, usually within 24 hours. In construction it only works with a lender that funds applications for payment and understands retention, CIS and pay less notices. It suits B2B firms on long payment terms, not homeowner work.
- It is an advance, not new money. A lender pays up to 80–90% of an invoice or application now and the rest, less fees, when your client pays.
- Construction needs a specialist. Applications for payment, retention, CIS and pay less notices make many standard lenders say no.
- It suits B2B work on 30–90-day terms. Homeowner jobs paid by deposit and stages don't need it.
- Fix the cash at the source first: deposits, stage payments, payment terms and fast applications.
Invoice finance for construction companies turns money a client owes you into cash this week. For a contractor waiting 60 days on a main contractor, that can keep wages and suppliers paid. It also costs money, ties you into a contract and does nothing for a job priced too low.
This guide explains how it works with applications for payment, retention and CIS, what it costs, and when to fix your cash another way. Not sure where your cash gets stuck? Book a free strategy call.
How invoice finance works
A lender pays you most of an invoice now and the rest when your client pays. According to the British Business Bank, providers typically advance up to 80–90% of the invoice value.
The cycle looks like this:
- You invoice. Or submit an application for payment to your client.
- The lender advances. Usually within 24 hours once the facility is set up.
- Your client pays. The money goes to the lender.
- You get the balance. The rest, minus the lender's fees.
It is not extra profit. It is your own money, earlier, for a fee. That is why the British Business Bank warns it doesn't fix an unprofitable business.
Thinking about borrowing against your invoices?
Book a free call with our team first. We'll look at where your cash gets stuck and what to fix before you pay a lender.
Factoring, invoice discounting and spot finance
There are three main types. They differ in who chases your clients and whether your clients know.
| Type | Who collects from clients | Do clients know? | Usually suits |
|---|---|---|---|
| Factoring | The lender runs your sales ledger | Yes | Smaller firms without a credit controller |
| Invoice discounting | You do | Usually not | Larger firms with good credit control |
| Selective or spot | Depends on the deal | Depends | Occasional big invoices, not every month |
In construction, visibility matters. Some main contractors query or delay payments to a factor more than they would to you. Discounting keeps the arrangement confidential, but lenders tend to offer it only at a higher turnover.
Why many lenders say no to construction
Construction invoices are not like a shop's invoices. Your client can value your work lower, hold retention or set off a contra-charge. A lender buying that debt carries all of that risk.
The four things lenders look at:
- Applications for payment. Your figure is a claim until the client's QS values it.
- Retention. Often 3–5% is held until completion or later.
- CIS deductions. The client pays you less than the invoice total.
- Pay less notices. The client can pay less than your application.
Specialist construction lenders can fund applications for payment, not just final invoices. Standard lenders often decline. Before you apply, get your applications and valuations right. See how to write a payment application and what to do with a pay less notice.
A worked example on one application
Here is how the numbers can look on one monthly application. The figures are an example, not a lender's offer.
| Item | £ |
|---|---|
| Application for payment, valued by the client | 50,000 |
| Less 5% retention | −2,500 |
| Amount the lender can fund against | 47,500 |
| Advance at 85% | 40,375 |
| Paid to you later, when the client pays, less fees | 7,125 |
If CIS deductions apply, the funded amount is lower again. Ask the lender to show the advance on your net figure, after retention and CIS.
The real question is what the 60 days cost you without it. If it saves you a late supplier account or lets you take a bigger job safely, it may pay. If it covers losses, it only delays them.
Leave with a plan for your next 90 days
A few short questions about your business, then 45 minutes, free, 1-on-1 with our team. Your next 90 days, even if we’re not a fit.
What invoice finance costs
Lenders charge in two main ways. The British Business Bank lists a service fee and a discount charge.
- Service fee A percentage of each invoice. Usually higher for factoring.
- Discount charge Works like interest on the money you draw.
- Other charges Set-up, processing and leaving fees can apply.
- Minimum term Most facilities tie you in for a set period.
Lenders may also ask for a personal guarantee and run credit checks. Ask for the total cost on a typical month in pounds, not a list of percentages. Then compare it with what your cash-flow problem really costs you.
Signing a long minimum term to fix one slow-paying client. Ask whether you can fund single invoices or chosen clients instead.
When invoice finance makes sense
It suits a narrow set of construction firms. You are a good fit if most of these are true:
This is for you if
- You work for main contractors or businesses on 30–90-day terms
- Your jobs make a healthy margin, but cash is tied up in valuations
- You are growing and need cash to start bigger packages
- Your applications are rarely cut back by pay less notices
It’s not for you if
- Homeowner jobs paid by deposit and stages
- A business losing money on its jobs
- Clients who regularly pay late or pay less
- Turnover too small for a facility (the British Business Bank says below about £300,000 traditional invoice finance is usually not suitable)
Not sure which side you are on? Book a free strategy call. We'll go through your last three months of applications with you.
Fix the cash at the source first
Most cash problems in a building firm start in the contract, not the bank. Before you pay a lender, check these:
- Deposits. Take a deposit before you order materials on private work.
- Stage payments. Tie payments to stages, so you are never far ahead of the client.
- Payment terms. Agree the payment period before you sign, not after.
- Fast applications. Submit on the due date, with photos and a clear breakdown.
- Chase on day one. Call the day a payment is late, then follow the process.
Clayton, one of our clients, started a £10K project on day one with £5K upfront and staged payments. No lender needed. Individual results, not typical or guaranteed.
For private clients, see how much deposit a builder should take. If a main contractor won't pay, see what to do when a main contractor isn't paying. If you are already funding jobs out of your own pocket, start there.
How we help owners fix cash flow
Costs are today. Payments are late. Sviat Jay runs a working construction company, Craftex, and deals with the same applications, retentions and payment terms every month. In one-to-one mentoring he goes through your contracts, prices and stage payments with you and fixes where cash gets stuck. Owners usually see results in about four months.
Want a quick view of where your business stands? Take the free 4-minute Construction Business Scorecard. Need someone to run your weekly numbers and cash-flow forecast? See our fractional COO and FD service.
Before you sign an invoice finance deal
- The lender funds applications for payment, not just final invoices
- You know the advance on your net figure after retention and CIS
- You have the total monthly cost in pounds
- You know the minimum term, leaving fees and any personal guarantee
- Your deposits, stage payments and payment terms are already fixed
