Asset Finance or Invoice Finance: Which One Your Business Actually Needs
Updated: Sep 22
In the seven months to July, members of the Finance and Leasing Association put £24.5 billion into British businesses for machinery, equipment and vehicles, £15.3 billion of it to SMEs. Over roughly the same period, UK businesses were sitting on an estimated £26 billion of late payments at any given moment.
Two very large numbers, describing two completely different problems. A fair few of the owner-managers who ring us about funding have quietly merged them into one.
Asset finance or invoice finance: the question underneath the question
Asset finance pays for something you haven't bought yet. A CNC machine, a fleet of vans, a packing line. The lender holds security over the kit, you pay monthly, and at the end of the term it's yours. That security is why the rate beats an unsecured loan and why the lender cares more about the machine than about your management accounts.
Invoice finance releases cash you've already earned. You raise a £40,000 invoice on 60-day terms, the funder advances most of it within a day or two, and you repay when your customer pays. Your sales ledger is the collateral. The facility grows as turnover grows, which is its great virtue and the reason it's so easy to get stuck on.
Written down like that, the difference is obvious. It stops being obvious at half past four on a Friday when the bank balance says one thing and the payment run says another. At that point everything looks like the same problem, and the question people ask is which one's cheaper.
That's the wrong question. Asset finance or invoice finance is a decision about which hole you're filling, not which headline rate is lower.
The maths on £300,000
Take a fabrication business turning over £2.4 million, collecting in 62 days against 30-day terms. The figures below are illustrative, built from public rates rather than a live quote, but the shape of them is real.
Its sales ledger runs at about £408,000. On invoice discounting at an 85% advance rate, that releases roughly £346,500 of cash. The cost is usually two charges: a service fee of around 0.4% of turnover, so £9,600, plus a discount charge on the money drawn. At a margin of 3.5% over base, 7.25% when these numbers were run in September 2026, that's another £25,100. Call it £34,700 a year, or 1.45% of turnover.
Now the machine. £300,000 on hire purchase, 10% deposit, five years at 9.5% APR. That's £5,619 a month, £337,150 repaid, and £67,150 of interest.
Side by side, the invoice facility looks cheaper. It costs half as much in year one. But the hire purchase stops after five years and leaves you owning a machine that carries on earning. The invoice facility doesn't stop. Five years of it is £173,600, and at the end you own nothing, because you've been renting access to your own money.
One is a purchase, the other a subscription. That isn't an argument against invoice finance, which is often exactly right for a business whose growth is outrunning its cash. It's an argument against comparing the two on headline rate, which is what almost everyone does first. What lenders want to know before you apply is worth ten minutes beforehand.
When the answer is neither
Here's the part no broker gets paid to tell you.
UK small businesses were paid an average of 8.3 days beyond terms in the second quarter of this year, according to Xero's Small Business Insights. If your own debtor days are 62 against 30-day terms, you're not 8 days late. You're 32. That's a collections problem rather than a funding gap, and borrowing against it is an expensive way to fix something you could fix for nothing.
The free tools are better than most people realise. You're entitled to statutory interest on a late commercial payment at 8% above the Bank of England base rate, plus a fixed sum per invoice: £40 on debts under £1,000, £70 up to £10,000, £100 above that. The rules are on gov.uk under late commercial payments. Hardly anyone charges it, which is precisely why hardly anyone pays on time.
If a larger customer is the culprit, the Office of the Small Business Commissioner takes complaints free through its website. It also runs the Fair Payment Code, which replaced the Prompt Payment Code in December 2024 and grades signatories Gold, Silver or Bronze on how quickly they actually pay. Worth a look before you take on a big new customer. The Commercial Payments Bill would go further and cap terms at 60 days, but it's still in the Lords and isn't law, so don't plan around it.
Government research puts the cost of late payment at nearly £11 billion a year and blames it for 38 business closures a day. Some of those businesses were underfunded. Rather more were under-chased.
What to do this week
Work out your real debtor days, invoice by invoice, not from a dashboard average. If the gap between your terms and your collections is more than a fortnight, start there before you start borrowing.
If you want to understand the products first, the British Business Bank publishes free guidance at british-business-bank.co.uk/business-guidance, including a plain English guide called Making Business Finance Work For You. It's government-owned, it isn't selling anything, and it's the best free reading on this in the UK. Our earlier pieces on invoice finance and SME cash flow and getting out of pandemic-era borrowing cover neighbouring ground.
One thing worth knowing before you sign: commercial asset finance and invoice finance to a limited company are unregulated business lending. They sit outside FCA consumer credit protection and outside the Financial Ombudsman Service. The FCA said as much in March, warning about firms registered only for anti-money-laundering supervision. Read the terms, particularly on personal guarantees and on what happens if a customer doesn't pay.
Pathfinder isn't directly FCA authorised. We're a brokerage, we work through authorised partners, and we don't lend our own money. What we do is look at the shape of the problem before recommending a product, which is a lower bar than it ought to be.
When you are ready to look at facilities, tell us what you're trying to fund and we'll come back with options. It takes a couple of minutes, it doesn't touch your credit score, and if the answer is that you don't need to borrow at all, we'll say so. If it's specifically importing or exporting you're funding, start on the trade finance page instead.
Or if you just want a second opinion on a facility you've been offered, ring us. Twenty minutes, no charge. The cheapest facility in this business is usually the one you turn out not to need.
Get in touch
We're based in Shrewsbury and we work with businesses across the UK.
Pathfinder FX
1 Knights Court, Archers Way, Battlefield Enterprise Park, Shrewsbury, SY1 3GA
+44 (0)1743 290955
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