# Invoice finance vs short-term loan

*Source: https://credicorp.co.uk/support/invoice-finance-vs-short-term-loan/*

If your business is owed money it has not yet been paid, invoice finance and a short-term loan answer the same symptom — a cash-flow gap — from opposite directions. Invoice finance advances money against your unpaid invoices; a short-term loan advances a fixed sum you repay on a schedule. For a business sitting on a healthy sales ledger, the two are genuinely different choices, and one is often a much better fit than the other.

## How invoice finance works

Invoice finance unlocks cash that customers already owe you. You raise an invoice, and the provider advances a percentage of its value up front, paying you the balance (less their charge) once the customer settles. It usually takes two broad forms. With **factoring**, the provider also takes over collecting the debt, so they chase your customers directly. With **invoice discounting**, you keep control of collections and the arrangement is typically confidential. Either way, the borrowing scales with your sales: more invoices, more available funding. It works best for businesses that invoice other businesses on credit terms and wait weeks to be paid.

## How a short-term loan works

A short-term loan does not depend on your invoices at all. You agree a fixed amount over a fixed term, receive it, and repay in instalments. Our live product is a short-term Business Bridging Loan of **£50 to £500 over 14 to 84 days**, with weekly or fortnightly repayments. Because it is small and short, it suits a specific, time-boxed gap rather than ongoing working-capital needs. You can see what we currently offer, with the real amounts, terms and costs, on [our business loans page](/business-loans/).

## Comparing the two

The decisive question is whether you have a strong sales ledger. If you are owed substantial sums by reliable customers, invoice finance is often the more natural and proportionate tool: it draws on money you have genuinely earned, and the facility grows with your turnover. It does, though, tie you into an arrangement around your ledger, can involve your customers in collections (with factoring), and carries its own charges set by the provider.

A short-term loan is simpler and faster to arrange for a small amount, and it does not involve your customers at all. But it is an expensive way to borrow when expressed as an annual rate, because the fixed cost of arranging a small sum is spread over only a few weeks. We are upfront about that. In return we show the cost plainly — amount, term, total amount payable, total cost of credit, a simple annualised rate and the full repayment schedule, all on your Key Information Sheet (KIS) and Business Loan Agreement — and we charge no early repayment fee. We do not quote a consumer APR.

## A note on regulation

Both invoice finance and our lending are typically business-to-business arrangements outside FCA consumer-credit regulation; in our case that is because a company is not an individual under Article 60B FSMA RAO 2001. So our loan is not covered by the Financial Ombudsman Service or the FSCS, and the same broad point may apply to an invoice finance facility. Check the provider’s own terms rather than assuming a particular protection applies.

## Which to choose

If unpaid invoices are the heart of the problem and your ledger is solid, look hard at invoice finance first — it is usually the better-matched answer. If you do not invoice on credit terms, or you simply need a small, defined bridge over a short period, a short fixed-term loan may suit better. And if the strain is structural rather than a one-off, more borrowing can make it worse; we set out steadier routes in our guide to [alternatives to short-term lending](/support/alternatives-to-short-term-lending/). Match the tool to the cash-flow problem, not the other way round.

---

Credicorp Limited — UK lender to limited companies (Company No. 16093826). credicorp.co.uk