Invoice finance lenders are advancing more money than ever. They’re just advancing it to fewer businesses.
Add a gradual change in who does the lending, a new rule on how invoices get sent, and a lot of talk about AI, and the next few years will look different from the last few.
Here’s what we’re watching, and what it means if you run a business or advise one.
More money, fewer businesses
UK Finance figures show lenders advanced £21.6bn at the end of 2024, up 7.5% on the year before. Over the same period, the number of businesses using invoice finance fell again. It’s a trend that has run for about a decade: more money, going to fewer, larger clients.
Why does that matter to a business turning over £1m or £2m? In our experience, a lender’s minimum fees and criteria tend to follow the size of client it wants most. If a lender is chasing £20m clients, its product probably isn’t built around you.
That doesn’t mean smaller businesses can’t get invoice finance. They can, and plenty do. It means the right lender is less likely to be the first name that comes to mind.
The list of lenders has changed
The big five banks no longer do most of the lending to smaller businesses. The British Business Bank shows challenger and specialist banks provided 60% of gross SME bank lending in 2025 (excluding overdrafts), up from 39% in 2012. It’s the fifth year running they’ve out-lent the big five. Add non-bank lenders and the figure is 68% of all SME lending.
Those numbers cover all SME lending, not just invoice finance. But we see the same shift in our own corner of the market. Recently we worked with a £1.5m turnover recruitment business whose bank declined to increase its facility. We placed it with a specialist lender who doubled the limit within three weeks.
For most business owners the question is no longer “will my bank do it?” It’s “which lender is the right fit?”
Business VAT invoices go electronic in 2029
From 1 April 2029, VAT invoices between businesses, and from businesses to the public sector, will have to be e-invoices. That means structured data sent from one accounting system to another. A PDF attached to an email will not count. Invoices to consumers are not covered.
The detail is due soon. HMRC has said it will publish a roadmap at the Budget, which is on Wednesday 28 October. That should set out the milestones and technical requirements between now and 2029.
Invoice finance runs on invoices. A lender funding your sales ledger needs to be confident each invoice is real, correct and owed. When an invoice is data and not a document, that check gets quicker and the invoice gets harder to fake.
Our view is that this should mean faster decisions and less paperwork for businesses with tidy records.
AI is already in the room
AI and data-driven risk tools were on the agenda at this year's UK Invoice Finance and ABL Summit, held in Birmingham in March. So were fraud and late payment.
Lenders are using software to read accounting data, spot unusual patterns and reach decisions faster. Good news if your books are clean and up to date. Less so otherwise.
It doesn't replace a conversation though. Someone still has to explain the story behind the figures.
If you run a business
✔ Fit matters more than size. Smaller facilities are out there, often from lenders you may not have heard of.
✔ Keep your invoicing and bookkeeping in good order. It will count for more every year between now and 2029.
✔ If your facility is a few years old, it is worth checking against what is available now. Sometimes the answer is "stay where you are", and we will say so.
If you advise businesses
✔ A client turned down by their bank has more options than they probably realise.
✔ E-invoicing is a way away, but the software questions will reach your desk well before then.
✔ We are happy to be a second opinion on a client's funding, with no obligation.
Want to talk any of this through? Drop us an email james@redwoodbusinessfinance.co.uk.