Owning a restaurant or hospitality business in the UK is fulfilling, but when it comes to cash flow, things are never simple. You can have a fully booked dining room, a fully booked hotel, and even a calendar full of corporate catering events but still be waiting 30, 60, or 90 days for outstanding invoices to be paid.
The difference between completing the job and receiving payment can create intense pressure on day-to-day business operations, such as paying wages or suppliers or even just keeping up with life during quieter seasons.
This brings us to invoice financing for hospitality businesses, an asset-based funding solution that is simply perfect for this issue. Instead of waiting for clients to pay their invoices in their own time, invoice finance enables you to access the cash tied up in those invoices, usually within 24 to 48 hours.
This guide will take you through everything from what invoice finance for hospitality businesses is to the problems it solves, the different types of invoice finance available, how much it costs and how to find the right invoice finance provider for your hospitality business.
Key takeaways
Invoice finance for restaurants and hospitality businesses lets you access cash from unpaid invoices quickly, without waiting for clients to pay.
Hospitality businesses face unique cash flow challenges such as seasonal swings, long payment terms from corporate clients, and high upfront costs.
The three main types of invoice finance are invoice factoring, invoice discounting, and spot invoice finance.
Typical fees range from 0.5% to 3% of invoice value as a service charge, plus a discount rate (interest) on the funds advanced.
Invoice finance is not a loan; it does not add debt to your balance sheet, and repayments scale naturally with your turnover.
Comparing multiple lenders through ComparedBusiness UK can save hospitality operators hundreds of pounds per year in fees.
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What Is Invoice Finance For Hospitality Businesses?
Invoice finance is a type of business funding that provides companies with an advance on the value of their outstanding debt in the form of invoices. Instead of waiting weeks or months for a client to settle up, you file the invoice with a finance provider, who pays roughly 80% to 95% of the amount owed immediately.
Once your client settles the invoice, the remaining balance (minus the lender’s fees) is released to you.
The process for invoice finance for hospitality businesses is no different. For example, if a hotel sends an invoice of £20,000 to a corporate client on 60-day payment terms, it no longer has to wait two months.
Rather than waiting, the finance provider pays out most of this amount upfront, allowing for available working capital to keep your business running in the meantime.
What makes invoice finance different from a business loan?
Unlike a bank loan, invoice finance does not create new debt; it simply releases money that is already owed to you earlier. There are no fixed monthly repayments, no collateral required, and the amount available grows naturally as your invoicing volume grows.
What Are Key Financial Challenges Faced By Hospitality Businesses?
However, before looking into the solution, it is helpful to look at why exactly invoice finance for hospitality businesses is so relevant.
1. Delayed Payment Cycle For Corporate And Event Clients
Hotels, caterers, and event venues regularly invoice corporate clients, businesses, and organisations, and those clients often operate on 30- to 90-day payment terms. The hospitality business has already spent money on staff, food, and venue preparation long before that invoice is settled.
2. Seasonal Revenue Swings
Many businesses in hospitality have quite drastic swings throughout the year. The majority of revenue might come from a coastal hotel in summer, while Christmas time may be critical for a restaurant in the centre of town. However, the running costs, such as rent, salaries, insurance, or utilities, can accumulate even in months of lower activity.
3. High Upfront Operational Costs
Restaurants and caterers must invest heavily before earning revenue. The industrial kitchen equipment, the food and beverage stock, furniture, and uniforms all account for high costs that need to be fulfilled before serving a single plate or generating an invoice.
4. Wage Pressures And Staffing Costs
Payroll is consistently one of the highest costs for hospitality businesses. As the market for skilled staff tightens, budgets are repeatedly being stretched and wages have to be paid on time even if unpaid invoices remain outstanding.
5. Licensing And Compliance Expenses
Licences such as alcohol, food hygiene, music and entertainment and late-night refreshment are a cost burden that arrive ahead of or separate from revenue cycles, creating additional strain on working capital.
6. Expansion And Franchising Costs
For successful hospitality operators looking to grow, whether opening a second restaurant or turning a concept into a franchise, expansion carries significant upfront investment in premises, equipment, staff recruitment, and new licences.
How Can Invoice Finance Help Restaurants and Hospitality Businesses?
Invoice finance for restaurants and hospitality businesses addresses the core of the issue directly: it turns your unpaid invoices into instant cash. Here is how it helps hospitality businesses:
1. Unlocking Cash Tied Up In Outstanding Invoices
You receive nearly all the value of that invoice in 24 to 48 hours rather than waiting 30 to 90 days for a corporate client to pay. This one change can completely overhaul how a hospitality business handles its finances.
2. Paying Supplies And Staff On Time
It is not as if payroll or supplier costs would wait for clients to actually settle their invoices. Invoice finance guarantees that you meet your operational commitments when due, enhancing your reputation with staff and supply chain partners.
3. Managing Seasonal Cash Flow
As the funding is directly related to the invoices you raise, the amount naturally scales with your business too. In high season, you bill more and, in the same way, have more cash. When it is quiet, you only draw what you require.
4. Funding Refurbishments And Growth
Cash unlocked through invoice finance can be reinvested into the business, whether it be a dining room refurb, upgrading your kitchen space, buying new catering equipment or funding the opening of your second site.
Real-World Example:
Imagine a London-based catering company regularly invoices corporate clients on 60-day terms. With £80,000 in outstanding invoices at any given time, their cash flow was consistently stretched.
But after using invoice factoring, they were able to access £68,000 within 48 hours, which was enough to cover payroll, stock their kitchen for a major event, and begin a partial kitchen refurbishment that had been on hold for over a year.
Types Of Invoice Finance For Hospitality Businesses?
Invoice finance is not a universal solution, as we identified earlier; different products work better for different types of hospitality businesses. Here are the common types of invoice finance:
| Type | Who Manages Collections? | Confidential | Best For |
|---|---|---|---|
|
Invoice Factoring |
Lender |
No |
SMEs or startups |
|
Invoice Discounting |
You |
Yes |
Established hospitality businesses |
|
Spot Factoring |
Depends on the provider |
Varies |
Seasonal businesses |
1. Invoice Factoring
Invoice factoring is where you sell your invoice to a factoring company. The lender provides you with most of the invoice value and also assumes all responsibility for chasing your clients to get paid on time, a process called ‘credit control’ or ‘collections’.
This is suitable for smaller hospitality businesses or ones that don’t have a specific accounts team, as it takes away the admin headache of carrying out debt collection yourself.
Read More: Invoice factoring costs in the UK
2. Invoice Discounting
Just like factoring, invoice discounting involves an advance of cash against your unpaid invoices; however, you keep ownership of your own sales ledger and continue to chase collections in-house. Importantly, this arrangement is private; your clients never know that a third-party lender is involved.
Invoice discounting is more appropriate for larger, established hospitality operators who have the in-house resources to manage credit control and wish to retain control of direct billing.
Want to learn more about the difference between disclosed and confidential factoring?
See our guide: Disclosed and Undisclosed Factoring: What’s the difference?
3. Spot Invoice Finance
Instead of signing up for an entire invoice finance facility, selective invoice finance lets you select particular invoices to fund whenever you feel the need for it.
Ideal for hospitality businesses with a seasonal model, this approach means that the cash flow requirement is only concentrated in particular months of the year rather than the whole year.
Learn more about spot factoring from our guide: Spot Factoring Costs Explained
Cost Of Invoice Finance for Hospitality Businesses
The first thing to understand before committing to any invoice finance facility is its cost structure. The number of charges is limited, so usually you need to stay acquainted with the two principal fees:
Service Charge
This fee is the lender’s biggest cost, charged as a percentage of your net invoice turnover through that facility. For hospitality businesses, we will typically be looking at a range from 0.5% to 3%, depending on the invoice volume, credit rating of your customers and whether you decide to go with factoring or discounting.
Discount Rate
This rate is the cost of using your funds, charged only on the amount you actually draw down. It functions much like an overdraft; you only pay for what you use and when you use it. You normally see rates as a percentage added onto the Bank of England base rate.
| Fee Type | Typical Rate | Charged On |
|---|---|---|
|
Service Charge |
0.5% to 3% |
Total invoice turnover |
|
Discount Rate |
1.5% to 4% |
Calculated daily based on amount drawn |
|
Setup Fee |
Varies |
Initial setup |
|
Contract Exit Fee |
Varies |
Terminating contract |
Did you know?
The difference between the highest and lowest invoice finance rates in the market can be significant. Comparing quotes from multiple lenders through a comparison platform like ComparedBusiness UK could save your restaurant or hospitality business hundreds or even thousands of pounds per year in fees.
Advantages Of Using Invoice Finance For Hospitality Businesses?
In addition to solving a short-term cash flow challenge, invoice finance for hospitality businesses also unlocks valuable wider commercial benefits:
1. Quicker Access To Cash: Funds are released, on average, 24 to 48 hours after the submission of the invoice, which is much quicker than a normal business loan application.
2. Debt-Free: Invoice finance does not show up on your balance sheet as borrowing because you are advancing cash against invoices that are already owed to you. Such action will preserve your credit profile and debt capacity.
3. Scales With Your Business: You invoice more; you fund more. The borrowing limit is not a hard and fast cap that your business outgrows; the facility grows in line with yours.
4. Accessed Easier Than A Bank Loan: Unlike traditional bank lending, invoice finance approvals are based more on the credit rating of your debtors, meaning that even businesses with poor credit histories may qualify.
5. Keeps The Supply Chain Moving: With consistent cash flow, you can keep a good relationship with your suppliers and pay them on time; good relations usually result in better terms and prices.
6. Lowers burden on credit control: By using invoice factoring, the provider takes on the responsibility of chasing up payment from your clients, meaning you can focus on running and growing the business.
7. Confidentiality (Discounting): With invoice discounting, your clients never know about the arrangement. You can keep those business relationships intact.
How To Find Reputable Invoice Finance Providers For Hospitality Businesses?
Not all invoice finance providers are the same. For hospitality businesses in particular, it is worth taking the time to find a lender with genuine experience in the sector and a fee structure that works for your model.
1. Look For Sector Experience
Some invoice finance providers specialise in specific industries. A lender with direct experience in hospitality will understand the nuances of your invoicing cycle, such as seasonal fluctuations, the nature of your debtors, and the timing of your cash flow needs.
2. Compare Rates And Fee Structures
Different providers also have different service charges and discount rates. Make sure to ask for a complete list of all fees, including amortisable set-up costs, minimum monthly payments and early exit charges, prior to signing anything.
3. Check The Contract Terms
Read the contract duration and also the penalty for opting out early very carefully. Certain providers offer flexible, rolling monthly contracts, while others have 12-month or 24-month contracts. Ensure the terms match your business needs, particularly if you only need seasonal funding.
4. Read Reviews And Check Credentials
Find out if they belong to UK Finance (the UK’s trade body for invoice finance providers) and search Trustpilot or similar independent review platforms for feedback from customers. Another good indication is a well-established history with hospitality clients.
5. Use A Comparison Platform
The simplest way to compare your options is through a finance comparison service for businesses such as ComparedBusiness UK.
Instead of contacting lenders one by one, which takes time and can leave a footprint on your credit file every time someone does a hard search, a comparison platform puts what you need out to multiple providers at once and brings back quotes for you to compare side by side.
Ready to improve your hospitality business cash flow?
Compare invoice finance quotes from leading UK lenders for free with ComparedBusiness UK.
Find The Best Invoice Finance Providers With ComparedBusiness UK
CompareBusiness UK makes it easy for restaurant and hospitality businesses to find the right invoice finance facility at the best available rate.
How We Work:
- Share your basic business details; it takes less than 2 minutes.
- We match you with multiple invoice finance providers suited to your hospitality business.
- Get free, no-obligation quotes and compare them side by side.
- Choose the deal that works for your business and start improving your cash flow.
Just fill in our quick quote form, and we will connect you with the top invoice finance providers in the UK.
FAQs
After your facility is established and the first invoice is submitted, funds are usually released within 24 to 48 hours. The first setup process, such as checking your debtors’ credit and reviewing your invoicing, typically takes from a few days up to a couple of weeks, depending on the lender.
Yes, spot finance allows you to only raise funds when needed. It is tailored for those businesses that don’t want a full facility all year round. You have the option to fund invoices when you need to, which would suit hospitality businesses with strong seasonal peaks.
This really depends on the kind of product you opt for. In the case of invoice factoring, your clients will already know that a third party is collecting on your behalf. Whereas, with invoice discounting, the whole arrangement is private, and your clients simply pay you as standard.
