Invoice finance is a form of business funding that allows you to release the cash tied up in your unpaid invoices. Instead of waiting 30, 60, or even 90 days for your customers to pay, an invoice finance provider advances you a percentage of the invoice value (typically 80% to 90%) within 24 to 48 hours of the invoice being raised.
When your customer eventually pays the invoice, the finance provider releases the remaining balance to you, minus their fees. This means you get access to your money much sooner, helping you manage cash flow, pay suppliers, meet payroll obligations, and invest in growth opportunities without waiting for slow-paying customers.
Invoice finance is used by businesses of all sizes across Australia, from small trades and services businesses to large corporations. It is particularly popular in industries where long payment terms are common, such as construction, manufacturing, transport and logistics, professional services, and wholesale distribution.
There are two main types of invoice finance, and understanding the difference is crucial for choosing the right product for your business.
With invoice factoring, you sell your invoices to the finance provider, who then takes over responsibility for collecting payment from your customers. The factor typically advances you 80% to 85% of the invoice value upfront, then pays you the remaining balance (minus fees) once the customer pays.
Factoring can be disclosed (your customer knows a third party is handling collections) or non-disclosed (payments are directed to a trust account controlled by the factor, but communications still appear to come from your business). Disclosed factoring is more common and usually cheaper.
Invoice discounting is a more hands-off arrangement where you retain full control of your sales ledger and collections process. The finance provider advances funds against your invoices, but your customers are unaware of the arrangement. You continue to manage customer relationships and collect payments as normal, then repay the advance when payments come in.
Invoice discounting is generally preferred by larger, more established businesses that have robust credit management processes. It is often slightly cheaper than factoring because the provider does not need to manage collections.
| Feature | Invoice Factoring | Invoice Discounting |
|---|---|---|
| Collections | Provider handles collections | You manage collections |
| Customer Awareness | Usually disclosed | Confidential |
| Advance Rate | 80-85% | 85-90% |
| Best For | SMEs needing collections support | Larger businesses with strong processes |
| Typical Cost | 1.5-3% per month | 1-2% per month |
| Minimum Turnover | From $50,000 pa | Usually $500,000+ pa |
Invoice finance costs are structured differently from traditional loans. Rather than a single interest rate, you will typically encounter a combination of fees that determine the total cost of the facility.
Discount fee or interest charge: This is the main cost of borrowing, calculated on the amount advanced. It typically ranges from 1% to 3% per month (or an annualised rate of 8% to 20%), depending on the facility type, your business profile, and the creditworthiness of your customers. Some providers charge a flat fee per invoice rather than a monthly rate.
Service or management fee: This covers the administration of the facility and is usually charged as a percentage of your total sales ledger, typically between 0.5% and 3% of your total invoiced amount. For factoring facilities where the provider manages collections, this fee tends to be higher.
Other fees: Some providers also charge establishment fees, monthly minimum fees, early termination fees, or per-transaction fees. Always ask for a full schedule of fees before committing to a facility so you can accurately compare the total cost between providers.
David runs a commercial cleaning company in Melbourne with annual turnover of $1.2 million. His corporate clients typically pay on 45 to 60-day terms, but he needs to pay his staff weekly and his suppliers fortnightly. This gap was causing constant cash flow stress and limiting his ability to take on new contracts. We helped David set up an invoice discounting facility that advances 85% of his invoices within 24 hours. The facility costs him approximately 1.5% per month on drawn funds, but the improved cash flow has allowed him to take on three new major contracts worth $400,000 in additional annual revenue. The cost of the facility is easily offset by the growth it has enabled.
Invoice finance is not the right solution for every business, but it works well in the right circumstances. Here are the scenarios where invoice finance tends to work best.
Businesses with long payment terms: If your customers routinely take 30 to 90 days to pay, invoice finance bridges the gap between issuing invoices and receiving payment. This is especially common in construction, manufacturing, professional services, and wholesale industries where extended payment terms are standard.
Fast-growing businesses: Rapid growth can strain cash flow as you invest in staff, equipment, and inventory to fulfil increasing orders. Invoice finance scales with your revenue: as your invoicing grows, so does the funding available to you. This makes it an ideal funding solution for businesses experiencing rapid expansion.
Seasonal businesses: Businesses with seasonal revenue patterns can use invoice finance to smooth out cash flow during slower periods. Rather than drawing on savings or overdraft facilities during quiet months, you can access funds tied up in outstanding invoices from your busy season.
Businesses unable to access traditional loans: If your business lacks the property or asset security required for a traditional business loan, invoice finance provides an alternative. Because the facility is secured against your receivables, you do not need to pledge real estate or other hard assets.
The application process for invoice finance is generally faster and less complex than applying for a traditional business loan. Here is what to expect at each stage.
Step 1. Initial assessment: Your finance broker will discuss your business needs, review your current invoicing patterns, and identify the most suitable type of invoice finance. They will need to understand your average invoice size, payment terms, customer base, and monthly invoicing volume.
Step 2. Documentation: You will need to provide financial statements (typically the last two years), a current aged debtor report, BAS statements, bank statements, and details of your major customers. Some providers also request a sample of recent invoices and your terms of trade.
Step 3. Customer credit assessment: The finance provider will assess the creditworthiness of your customers, since they are ultimately the ones paying the invoices. Strong, creditworthy customers (such as government departments, large corporations, or established businesses) will result in better terms and higher advance rates.
Step 4. Facility approval and setup: Once approved, the facility is established and you can begin submitting invoices for funding. Most facilities can be set up within two to four weeks from initial application, though some fintech providers offer faster turnarounds.
When choosing an invoice finance provider, look beyond the headline rate. Consider factors like the advance rate, any minimum usage requirements, lock-in periods, and how easy it is to submit invoices for funding. Some modern providers offer online platforms where you can upload invoices and receive funds within hours, while others still rely on manual processes that can take several days.
Understanding how invoice finance compares to other business funding options can help you make an informed decision about the right solution for your needs.
| Funding Type | Best For | Security Required | Speed |
|---|---|---|---|
| Invoice Finance | Cash flow management | Invoices/receivables | 24-48 hours |
| Business Overdraft | Short-term fluctuations | Property or assets | 2-4 weeks |
| Term Loan | Capital investment | Property or assets | 3-6 weeks |
| Line of Credit | Flexible working capital | Property or assets | 2-4 weeks |
| Equipment Finance | Asset purchases | The equipment itself | 1-2 weeks |
Not reading the fine print on fees: Invoice finance facilities can have complex fee structures including discount fees, service fees, minimum usage fees, and early termination penalties. Always request a comprehensive fee schedule and calculate the total cost of the facility before signing. Ask your broker to model different usage scenarios so you understand the cost at various funding levels.
Using invoice finance as a long-term crutch: While invoice finance is excellent for managing cash flow gaps, it should not mask underlying business problems. If your business consistently struggles to cover expenses even with invoice finance, there may be deeper issues with pricing, cost management, or business model viability that need addressing.
Neglecting your own credit management: Just because you have invoice finance does not mean you should stop chasing payments. The faster your customers pay, the less you pay in finance charges. Maintain strong credit management practices including clear payment terms, timely invoicing, and proactive follow-up on overdue accounts.
Choosing the wrong facility type: Selecting a whole-of-ledger facility when you only need occasional funding, or choosing factoring when confidential discounting would better suit your business, can result in unnecessary costs and complications. Work with your broker to match the facility type to your actual needs.
Ignoring the impact on customer relationships: With disclosed factoring, your customers will deal directly with the factor for payment queries. Choose a provider with professional, courteous collections practices that align with how you want your customers to be treated. Poor collections behaviour by your factor can damage customer relationships you have spent years building.
While invoice finance can work for almost any B2B business, certain industries are particularly well suited to this type of funding due to their payment term structures and cash flow patterns.
Construction and trades: The construction industry is notorious for long payment chains. Subcontractors often wait 30 to 90 days for payment from head contractors, who in turn wait for the developer or principal to pay. Invoice finance helps construction businesses bridge these gaps and maintain operations while waiting for progress claim payments.
Transport and logistics: Freight and logistics companies typically operate on tight margins with high operational costs including fuel, maintenance, and driver wages. Customers often pay on 30 to 60-day terms, creating cash flow pressure. Invoice finance ensures these businesses can cover weekly operational costs while waiting for larger invoices to be settled.
Manufacturing: Manufacturers face the dual challenge of purchasing raw materials upfront while granting extended credit terms to their buyers. Invoice finance bridges this gap, ensuring manufacturers can continue purchasing materials and paying production costs without interruption.
Recruitment and staffing: Staffing agencies pay their temporary workers weekly but may not receive payment from clients for 30 to 60 days. This creates a significant cash flow mismatch that grows as the business scales. Invoice finance is widely used in the recruitment industry to manage this gap.
Professional services: Accounting firms, IT consultants, marketing agencies, and other professional service businesses often invoice monthly or upon project completion, with payment terms of 30 days or more. Invoice finance helps these businesses maintain consistent cash flow between client payments.
The invoice finance market in Australia includes dozens of providers, from major banks to specialist non-bank lenders and fintech platforms. Each has different pricing, eligibility criteria, advance rates, and facility structures. Navigating this market on your own can be time-consuming and confusing.
A finance broker who specialises in business lending can assess your specific situation, identify the most suitable providers, and negotiate competitive terms on your behalf. They understand the nuances of different facility types and can match your business needs to the right product. At Mortgage & Finance Advisory, we work with a wide range of invoice finance providers and can help businesses across Geelong, Melbourne, and regional Victoria find the right cash flow solution.
This depends on the type of facility. With disclosed factoring, your customers will be aware that a third party is managing collections. With confidential invoice discounting, your customers typically have no knowledge of the arrangement. Many businesses prefer confidential facilities to maintain their customer relationships and professional image.
This depends on whether your facility is recourse or non-recourse. With a recourse facility (most common), if your customer fails to pay, you are responsible for repaying the advance. With non-recourse factoring, the finance provider absorbs the bad debt risk, but this comes at a higher cost. Non-recourse facilities typically have stricter eligibility criteria.
Some facilities are whole-of-ledger, meaning all invoices must be submitted for funding. Others offer selective or spot factoring, where you choose individual invoices to finance as needed. Selective facilities offer more flexibility but typically come with higher per-invoice costs. Your broker can help you find a facility structure that matches your needs.
Once your facility is established, most providers can advance funds within 24 to 48 hours of receiving an eligible invoice. Some online providers offer same-day funding. The initial setup process typically takes two to four weeks, but once active, accessing funds against new invoices is quick.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
