Invoice finance, also called debtor finance, lets a business draw cash against its unpaid invoices instead of waiting 30, 60 or 90 days to be paid. It's used to smooth out cash flow, especially when you have to pay wages and suppliers before your customers pay you.
How it works
You raise an invoice and the lender advances a percentage of its value, commonly around 80% to 90%, within a day or two. When your customer pays, the lender releases the balance, less its fees.
Example only: on a $20,000 invoice with an 80% advance, you'd receive about $16,000 upfront. The remaining $4,000, less fees, follows when your customer pays.
Types to know about
- Factoring. The lender may collect payment from your customers, who are usually told about the arrangement.
- Invoice discounting. You keep collecting from customers, and the arrangement stays confidential.
- Selective vs whole ledger. You can finance chosen invoices only, or agree to finance all invoices (or all invoices to certain customers). Whole ledger is less flexible but is often cheaper.
Who it suits
Businesses that invoice other businesses on payment terms, such as trade subcontractors, transport operators, wholesalers, manufacturers and labour hire firms. It generally isn't suited to businesses that are paid at the point of sale.
What lenders look for
Lenders generally want an ABN, a trading history, invoices owed by creditworthy customers, and often accounting software such as Xero or MYOB so invoices can be checked and funded quickly. Requirements differ between lenders.
What to weigh up
- Costs vary by lender and can include service fees, discount charges or interest, and establishment fees. Compare the total cost, not only the headline rate.
- Used long term, it can cost more than a traditional loan, so it's best matched to genuine timing gaps.
- Check who is responsible if a customer doesn't pay (recourse vs non-recourse).
If you're not sure whether invoice finance or another cash flow option fits, send us an enquiry.