Trade finance vs invoice finance: what's the difference?
Import finance funds goods before arrival and bridges the gap between paying a supplier and receiving customer payment; invoice finance through discounting or factoring releases cash tied up in invoices issued to business customers. This guide compares the two routes and explains how they fit within Trade Finance.
The short answer
Import finance pays for overseas goods before they arrive. Invoice finance releases cash tied up in outstanding invoices to business customers.
On this site, Trade Finance is the umbrella category for invoice discounting, invoice factoring and import finance. Invoice finance is therefore not an alternative to trade finance as a whole: it is one part of that category. The useful comparison is between import finance on the purchase side and invoice finance on the invoice side.
Import finance concerns an overseas goods purchase before the goods arrive. Invoice finance concerns outstanding invoices already issued to business customers. Both address capital tied up in trade, but at different points in the cash flow. Neither route is an offer of finance or a promise that your business will qualify.
| Comparison point | Import finance | Invoice finance |
|---|---|---|
| When it is used | Before overseas goods arrive or are sold. | After you have invoiced a business customer. |
| What is funded | Purchase of overseas goods; the lender pays the supplier directly or reimburses you. | Outstanding invoices to business customers. |
| Repaid from | Customer payment proceeds. | Customer settling the invoice. |
| Structure | Revolving line or per-shipment transactional facility. | Revolving facility; headroom becomes available as invoices settle. |
| Customer aware? | Not applicable to the invoice-collection comparison. | Discounting: confidential. Factoring: customers are aware. |
Indicative terms
| Product | Feature | Indicative figure |
|---|---|---|
| Import finance | Advance rate | Up to 100% of purchase order value |
| Interest rate | 1.5–4% over base rate per annum | |
| Arrangement fee | 0.5–2% of facility | |
| Transaction term | 30–180 days per transaction | |
| Invoice discounting | Advance rate | 75–90% of invoice face value |
| Discount charge | 1.5–3% over Bank of England base rate | |
| Service fee | 0.2–0.5% of annual turnover | |
| Invoice factoring | Advance rate | 75–90% of invoice face value |
| Factoring fee | 0.75–2.5% of invoice value | |
| Discount charge | 1.5–3% over base rate (daily) |
Import finance
- Advance rate
- Up to 100% of purchase order value
- Interest rate
- 1.5–4% over base rate per annum
- Arrangement fee
- 0.5–2% of facility
- Transaction term
- 30–180 days per transaction
Invoice discounting
- Advance rate
- 75–90% of invoice face value
- Discount charge
- 1.5–3% over Bank of England base rate
- Service fee
- 0.2–0.5% of annual turnover
Invoice factoring
- Advance rate
- 75–90% of invoice face value
- Factoring fee
- 0.75–2.5% of invoice value
- Discount charge
- 1.5–3% over base rate (daily)
All figures are indicative and subject to status.
How import finance works
Import finance funds overseas goods before arrival, rather than borrowing against an invoice already issued. The lender pays the supplier directly or reimburses your business, and repayment follows your customer's payment. The facility may be revolving or arranged per shipment.
The transaction term quoted above is a product term, not a decision or funding timescale. Timescales depend on the lender and the deal. The indicative advance, interest and fee quotations are not a guarantee of the terms available to any applicant.
Place your order
Agree terms with your overseas supplier and share the purchase order with the lender.
Lender pays the supplier
The lender pays your supplier directly on your behalf or reimburses you for the payment.
Goods are shipped and sold
Goods are shipped, received and sold by your business in the normal way.
Your customer pays
Use the customer payment proceeds to repay the lender plus fees.
Revolving line available
Many facilities are structured as revolving lines, allowing drawings against new purchase orders.
How invoice finance works
Invoice finance releases cash tied up in invoices your business has already issued to business customers. The Invoice Finance page explains the two routes Oku arranges: invoice discounting and invoice factoring. The distinction is who maintains the sales ledger and handles collection, rather than whether the invoices exist.
With invoice discounting you borrow against outstanding invoices while maintaining your own sales ledger. The arrangement stays confidential. It can be a revolving facility, with headroom becoming available as invoices settle.
With invoice factoring a specialist factor collects invoices and advances cash against them. The factor manages credit control and customers are aware of the arrangement. This is different from keeping that work within your own business.
The advance-rate figures are not extra sales revenue: the facilities bring forward money tied up in invoices. The discounting service fee and factoring fee use different bases, so they should not be treated as interchangeable descriptions of the same charge.
Which suits your business?
Start with the point at which cash is tied up. If the requirement is paying an overseas supplier for goods before they arrive, import finance may fit. If you have already invoiced a business customer, invoice finance addresses that outstanding invoice.
Import finance may suit businesses with confirmed customer orders before purchasing stock, suppliers requiring upfront payment or short terms, or established supplier relationships and quality purchase orders. These are qualitative circumstances, not minimum eligibility requirements.
Invoice finance may suit B2B businesses with a debtor book. Invoice discounting may suit a business that wants to maintain its own sales ledger and keep the facility confidential. Invoice factoring transfers collection to a specialist factor, rather than leaving credit control with your team.
Customer type matters to the explanation: invoice finance here is against invoices to business customers. The guide does not set a turnover threshold, trading-history requirement or minimum order size. All finance is subject to status, provider criteria and terms and conditions.
Discuss the requirement before choosing a facility
Oku Financial is independent, with no balance sheet to protect and no product to push. We design the deal before approaching lenders: size, tenor, security and covenants.
We approach the right lenders simultaneously, creating genuine competition and compressing timelines. That is the existing Fast pillar, not a promised approval or funding duration. The aim is to present clear options for the requirement you describe.
Try the finance finder
If you are still unsure where to start, the finance finder asks about the purpose of your requirement and points to a product overview. You can also read the import-finance and invoice-finance pages, or talk to us about whether your cash is tied up before a purchase or after issuing an invoice.
The finder is an indicative starting point only, not advice, a recommendation or an offer of finance. Oku Financial works with business customers only. Use the contact page to discuss your circumstances; this comparison does not promise eligibility or particular terms.
Frequently asked questions
What is the difference between trade finance and invoice finance?
Import finance funds the purchase of goods before they arrive, bridging the gap between paying a supplier and receiving customer payment. Invoice finance releases cash tied up in invoices you have already issued to business customers.
Is invoice finance a type of trade finance?
On the Oku Financial site, invoice discounting, invoice factoring and import finance all sit under Trade Finance, because each releases capital tied up in trade.
Who repays the lender with import finance?
Once your customer pays, you use the proceeds to repay the lender plus fees.
Does my customer know about invoice finance?
With invoice discounting, customers are not aware of the facility. With invoice factoring, the factor collects payment, so customers are aware of the arrangement.
Does either option dilute equity?
No. These facilities release capital tied up in invoices and cross-border trade flows without diluting equity.
Is Oku Financial a lender?
No. Oku Financial is a commercial finance broker. We work with a panel of lenders to find funding for UK businesses.
Want to discuss your requirements?
Business finance arrangements for UK businesses across trade finance, business lending, capital and liquidity facilities.
We typically receive a commission from the finance provider (either a fixed fee or a fixed percentage of the amount you receive) upon successful placement. Different providers pay different rates.