Payments
Working capital finance: comparing ways to cover a cash-flow gap
Suppliers may need paying before customers pay you. This guide explains invoice finance, card-sales-based funding, revolving credit and overdrafts, including costs and repayment terms.
Written by Jessica Gardner, In-house Editor, Reeve Consult · 2 min read
Updated
What is working capital finance?
Working capital finance provides money for day-to-day business needs when outgoing costs arrive before incoming cash. Options include invoice finance, overdrafts, revolving credit and funding repaid from card sales. They have different eligibility, fees, repayment patterns and liabilities. Compare the amount received and total cost over the same period, alongside whether repayments fit the cash available.
- Profit on paper does not mean cash is available when a bill falls due.
- Factor rates and annual interest rates express costs differently.
- Lower payments during quiet trading do not necessarily reduce the total owed.
A profitable business can still have a cash gap when suppliers need paying before customer money arrives. Financing that gap involves more than comparing a headline rate: the amount, timing and repayment pattern all matter.
What is the cash gap?
Describe when the outgoing cost occurs, when money is expected and what happens if it arrives late. For example, stock purchased in January and paid for by customers in March creates a different need from a permanent shortfall in trading income.
The funding proposal should be assessed against that scenario, including quieter trading and any existing commitments.
How can invoice finance work?
A provider advances an agreed proportion against eligible invoices, with charges and the balance handled under the facility terms. Factoring and discounting can differ in who manages collection and how customers are involved.
Eligibility, advance levels and treatment of disputed or unpaid invoices depend on the offer. An advertised maximum is not an amount every business receives.
Find where money waits between a sale and your bank account, then compare payment schedules and funding costs.
What does funding linked to card sales involve?
An advance can be collected through an agreed share of card takings. The offer defines total repayment, fees, collection rules and any other obligations. A quieter day may reduce that day's collection without reducing the total owed.
For an illustrative £20,000 advance with a stated total repayment of £25,000, the £5,000 difference is only part of the assessment. The collection pattern and any other charges need considering too. It is not directly comparable with an annual interest percentage without the repayment timing.
How do revolving credit and overdrafts differ?
A revolving facility permits drawings and repayments within agreed conditions and a limit. An overdraft allows an account balance below zero within its agreement. Fees, availability, review, termination and repayment conditions can differ, so inspect those terms rather than assume one is always suitable.
What should a comparison show?
Use the same amount and cash-flow scenario. Ask for the money available, total payments, dates or collection method, fees and consequences of changed trading. Check security, guarantees and early-repayment treatment where relevant.
The British Business Bank's finance information can help explain categories before a provider discussion. Reeve Consult can explain its payment-linked referral options, while suitability and the funding agreement need assessing for the business's own circumstances.
Frequently asked questions
Straight answers
Does a lower collection during quiet trading reduce the total owed?
Can factor rates be compared directly with annual interest rates?
Next step
What cash-flow gap are you considering funding?
Tell us the purpose and payment setup. We can explain our payment-linked referral options and the provider information to review.
Discuss funding optionsJessica Gardner is the in-house editor at Reeve Consult. She writes and edits every guide, blog post, and resource published on the site, making sure the writing is plain-English, the facts check out, and the advice is genuinely useful for the UK independent business owners we work with. Jessica spent eight years in editorial roles across UK trade and business publications before joining Reeve Consult.