Invoice Finance for Construction Companies in the UK: The Complete Guide

By Secure Business Finance - an experienced UK Construction Finance Brokerage

Cash flow is the single biggest constraint on growth in the UK construction industry. Even profitable contractors fail because they run out of working capital while waiting 30, 60, or even 90 days to be paid.

Invoice finance has become one of the most important funding tools for UK construction companies- from subcontractors and groundworks firms to main contractors and specialist trades.

In this guide, I will explain:

What invoice finance is and how it works in construction
Why construction companies are uniquely suited to it
The different types of construction invoice finance in the UK
The real costs, risks, and benefits
How to qualify and get the best deal

This is written from the perspective of a broker who arranges these facilities daily for UK construction businesses.

Why Cash Flow Is a Structural Problem in Construction

Construction is not like most industries.

You typically face:

Long payment cycles (30–90+ days)
Retentions holding back 3–5% of contract value
Front-loaded costs (labour, materials, plant hire)
Stage payments and valuations
Payment delays caused by applications, disputes, or certification issues

Meanwhile, you still have to pay:

Wages weekly or monthly
Suppliers on short terms
HMRC on fixed deadlines

This creates a permanent funding gap- even in profitable companies.

Invoice finance exists specifically to solve this problem.

What Is Invoice Finance in Construction?

Invoice finance allows you to unlock cash from your unpaid invoices immediately, instead of waiting for your customer to pay.

In most cases:

You raise an invoice or application for payment
The lender advances 50%–70% of the value within 24 hours
When your client eventually pays, you receive the balance minus fees

It is not a loan in the traditional sense. It is funding tied directly to your sales ledger. Money that is owed to you that you are unlocking.

Why Invoice Finance Works So Well for Construction Companies

Construction businesses are ideal candidates for invoice finance because:

You issue regular invoices or applications
You often work for large, creditworthy companies
Your main problem is timing, not profitability
You are growing faster than your cash flow allows

In simple terms:
You are not short of work. You are short of working capital.

Invoice finance converts your debtor book into usable cash.

Types of Invoice Finance for Construction Companies

1. Invoice Factoring

The finance company advances cash
They also handle credit control and collections

Best for:
Smaller contractors, growing businesses, or firms without strong credit control processes.

2. Invoice Discounting

You retain control of your sales ledger
The facility is usually confidential

Best for:
Established construction companies with good systems and experienced accounts teams.

3. Selective Invoice Finance

You fund only specific invoices or contracts
No obligation to fund the whole ledger

Best for:
Contractors who only need funding for large projects or occasional cash flow gaps.

4. Application / Valuation Finance

Some lenders will fund:

Stage payments
Applications for payment
Interim valuations

This is critical in construction and not all lenders support it. Specialist brokers know which funders do.

What Can You Use Invoice Finance For?

Construction companies typically use invoice finance to:

Fund payroll
Buy materials
Pay subcontractors
Hire plant and equipment
Take on larger contracts
Smooth cash flow during growth
Reduce reliance on overdrafts and director loans

The most successful firms use it as a growth engine, not a distress tool.

How Much Does Construction Invoice Finance Cost?

Costs vary depending on:

Turnover
Debtor quality
Contract structure
Ledger size
Risk profile

In real terms, most construction firms are paying 1.5% - 4% of invoice value for access to immediate cash.

Common Concerns (and the Reality)

“Will my customers know?”

With factoring: In some cases, yes- if the factoring arrangement is disclosed. That said, confidential factoring options exist where customers are not notified.
With invoice discounting: often no

Many major contractors are completely used to paying funders.

“What about retentions?”

Some lenders:

Exclude retentions entirely
Some fund net-of-retention values
Some offer separate retention finance

This must be structured correctly at the outset.

“What about pay-when-paid contracts?”

Many lenders will not fund them.
Specialist construction funders will- with the right structure.

This is where using a broker is critical.

Who Qualifies for Construction Invoice Finance?

You generally need:

B2B or Government customers
A trading history (some lenders accept startups with contracts)
A functioning invoicing / application process
Reasonable gross margins

Even companies with:

CCJs
Weak balance sheets
Rapid growth
Tight cash flow

…can often still be funded, because the risk is primarily your customer, not you.

Why Most Contractors Get the Wrong Facility

The biggest mistakes I see:

Using a generalist bank instead of a construction-aware lender
Facilities that exclude applications or retentions
Poor contract reviews
Inflexible limits that strangle growth
Over-aggressive credit control damaging client relationships

Construction finance is a specialist discipline.

The cheapest facility is often the wrong one.

Invoice Finance vs Overdrafts and Loans

Invoice Finance grows with your turnover and is directly linked to your sales whereas an overdraft or loan does not. Invoice Finance credit risk focus is predominantly on your customers whereas an overdraft or loan is on your business. There is a large amount of flexibility with Invoice Finance compared to overdrafts or loans which are often rigid.

We find that overdrafts and loans aren’t typically ‘construction-friendly’ whereas Invoice Finance is widely used in construction already.

Invoice finance is not a replacement for all funding- but it is the best core working capital tool in construction.

Final Thoughts from a Broker

In over a decade of arranging construction finance, I have seen:

Profitable firms fail due to cash flow timing
Average firms scale rapidly using invoice finance
Businesses transform overnight once cash pressure is removed

Invoice finance is not a sign of weakness.
In construction, it is a strategic tool.

If your business is growing, bidding for larger contracts, or constantly juggling cash flow, this is almost certainly the right solution- if structured properly.