Lloyds Bank is reportedly preparing to shut down a key service used by small businesses, in a move expected to affect thousands of customers who rely on it to manage their cash flow. The decision comes at a time when many smaller firms are already facing rising costs, tighter margins and ongoing pressure from higher wages and tax changes.

The bank, which is the UK’s largest high street lender, is planning to end its invoice factoring service before the end of the year. Many small businesses depend on factoring to keep money flowing when customers pay late.

The news about the decision emerged earlier this week, as first reported by the Financial Times.

The factoring service allows Lloyds to buy unpaid invoices from small business customers, giving them cash upfront while the bank collects the payment later. 

For many firms with unpredictable income or long payment cycles, it has acted as a lifeline.

Industry groups say the timing is difficult for small businesses dealing with rising bills across employment, business rates and energy. 

Craig Beaumont, executive director at the Federation of Small Businesses, told the Financial Times that banks should be helping firms access working capital as costs increase. 

He warned the withdrawal of services such as this could make trading even harder for those on thin margins.

Invoice factoring is typically used by small and medium-sized companies who want to outsource payment collection and stabilise their cash flow. 

Banks first moved into the sector hoping the service would attract business customers who might later take out other financial products. 

But running factoring units profitably has proved challenging, as the businesses using them tend not to generate large profits for lenders.

Lloyds now becomes the latest of the major banks to scale back its involvement. 

NatWest and Barclays closed their factoring operations several years ago, while HSBC continues to offer the service but only to firms with more than £1 million in annual turnover.

Small business owners say access to factoring has already become more difficult, with stricter criteria and fewer lenders offering support.

Nathaniel Southworth, who runs North Yorkshire toy distributor KAP Toys, said he had previously used factoring services from multiple high street banks but that tightening rules made it harder for companies like his to qualify.

He said smaller firms often feel shut out because their finances do not always follow predictable patterns.

Late payments from large suppliers remain a major issue for many small businesses, meaning services that provide early access to cash are often crucial to keeping operations running.

Lloyds has declined to comment publicly, but a person close to the bank told the Financial Times that the factoring division was small and used by fewer than 1% of its SME customers. 

They added that the bank would continue to offer other types of invoice finance and was still expanding its broader SME lending services to avoid disruption for existing clients.

HSBC and Barclays both said they continue to support small business finance needs, including through alternative lending products.