Prepayment percentage

Definition

The prepayment percentage is another name for the advance rate in invoice finance — the proportion of each invoice the financier pays up front. A prepayment percentage of 85% means you receive 85% of every qualifying invoice immediately.

In plain terms

It is the headline number that tells you how much cash a facility will release: multiply your eligible ledger by the prepayment percentage to see roughly the working capital available. The rest follows when customers pay.

Why it matters

Compare prepayment percentages and fees together when weighing facilities. See advance rate.

In practice for a limited company

Picture a small UK limited company that has just moved onto an invoice finance facility. Each time it raises an approved invoice, the financier releases the agreed prepayment percentage almost immediately, so the bulk of that invoice's value turns into usable cash without waiting for the customer's own payment terms to run their course. The remaining balance sits with the financier until the customer settles, at which point it is released, less any charges due.

In day-to-day terms, the prepayment percentage is what a finance director actually plans around: it determines how much of the sales ledger converts into working capital at any one time, which in turn shapes decisions on supplier payments, payroll timing, and whether to take on new orders. Because the released amount is tied to invoices raised rather than invoices paid, a growing ledger tends to release more cash, and a shrinking one less.

How lenders read it

Financiers do not apply one flat prepayment percentage to every business or every invoice. It is usually set with reference to the perceived quality of the debtor book — how reliably customers pay, how concentrated the ledger is among a few large accounts, and how the sector typically behaves. A ledger seen as lower risk tends to support a higher prepayment percentage; a more concentrated or slower-paying book tends to support a lower one, with a larger retained balance held back as a buffer.

It also is not necessarily fixed for the life of a facility. Lenders reviewing performance over time may revisit the prepayment percentage if the debtor book changes shape, disputes or credit notes become more frequent, or the concentration of debtors shifts. For this reason, directors comparing invoice finance offers are best placed to read the prepayment percentage alongside disapproved invoice criteria and the discount charge structure, rather than in isolation, since together these determine how much of the ledger actually converts into accessible funds.