Invoice finance: turning unpaid invoices into working capital

When customers take 30, 60 or 90 days to pay, a growing business can run out of cash while making a profit. Invoice finance attacks that problem at its root by advancing money against what you’re already owed. It’s not right for everyone, and it comes in two quite different forms, so it pays to compare.

How does invoice finance work?

1. You do the work and issue an invoice to a business customer.
2. The financier advances an agreed percentage of the invoice value.
3. Your customer pays the invoice on its normal terms.
4. The financier releases the balance, minus its fees.

Because the funding is tied to invoices, the amount available grows as sales grow. That’s the key difference from a fixed loan or credit limit.

Factoring or discounting?

	Factoring	Invoice discounting
Who collects from customers	Usually the financier	You
Do customers know?	Usually	Often not (confidential)
Typical user	Smaller or newer businesses	Larger, established businesses
Admin for you	Less	More
Credit control	Outsourced	Stays in-house
Cost	Can be higher, includes collection service	Often lower, but needs strong systems

How does it compare with other working capital options?

	Invoice finance	Line of credit	Short-term loan
Funding grows with sales	Yes	No, fixed limit	No, fixed amount
What backs it	Your debtor book	Trading record or property	Trading record
Repaid by	Your customers’ payments	You	You, on a schedule
Paperwork	Debtor ledger, customer details	Bank statements	Bank statements
Best for	Slow-paying B2B customers	Recurring timing gaps	One-off needs

If your customers pay on time and the gap is seasonal, a line of credit is usually simpler. If you’re winning bigger contracts and growing faster than cash can keep up, invoice finance is often the better fit.

Who suits invoice finance?

• Labour hire, cleaning and security firms paying staff weekly while clients pay monthly.
• Manufacturers and wholesalers supplying larger retailers.
• Transport and logistics businesses with corporate accounts.
• Professional services billing on 30-day or longer terms.
• Suppliers to government, which can be reliable but slow.

It suits less well if most sales are to consumers, if invoices are often disputed, or if a few very small customers make up the ledger.

What do invoice financiers check?

• Your customers, not just you. Their size, payment history and concentration matter.
• The debtor ledger: ageing, disputes, credit notes.
• Contracts and terms: whether invoices are for completed work.
• Concentration risk: one customer making up most of the ledger can limit funding.
• Existing security: a general security interest held by another lender may need to be dealt with on the PPSR.

An illustrative example

Illustrative example. A Melbourne commercial cleaning company pays 40 staff weekly but invoices clients monthly on 30-day terms, so wages run about seven weeks ahead of receipts. As it wins a new contract with a hospital group, the gap widens. A $150,000 term loan would cover today’s gap but not the next contract’s. An invoice discounting facility advances against each month’s invoices, so funding grows as the client list grows, and the company keeps managing its own client relationships.

What should you compare between invoice finance offers?

• Advance rate: how much of each invoice is funded upfront.
• Fees: service fees, discount charges, minimum monthly fees, setup and exit fees.
• Recourse: who wears a bad debt.
• Minimum term and exit costs: some facilities have lock-in periods.
• Concentration limits on large customers.
• Notification: whether customers are told.

Fees on invoice finance are structured differently from loans, so compare them in dollars over a typical month. Our fees page explains the common charges.

How do you get the business ready for invoice finance?

A financier’s assessment goes smoother when your ledger is tidy. Before applying:

• Bring the debtor ledger up to date in your accounting software.
• Resolve old disputes or credit notes that make invoices uncertain.
• Check your customer contracts for clauses that limit assigning invoices.
• List your top customers with their share of sales and payment history.
• Find out about existing security, such as a general security agreement held by another lender on the PPSR, which may need consent or release.

Ledger issue	Why a financier cares
Invoices over 90 days	May not be funded
One customer over half the ledger	Concentration limits apply
Frequent credit notes	Suggests disputes
Invoices for work not yet done	Usually not fundable

The cleaner the ledger, the higher the share of invoices that can be funded and the quicker the facility starts.

Unlock what customers already owe you

If slow-paying customers are holding back a profitable business, it’s worth comparing invoice finance with a credit line. Enquiring doesn’t mark your credit file; a check only comes up once you choose to go ahead. We won’t scatter your details to every financier going. A real person looks at your customers and payment terms, then explains whether factoring, discounting or something simpler suits you best.

Please be accurate on the form about turnover and how long customers take to pay. See if you qualify, or use the comparison tool to rank the options and then start your enquiry.