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Invoice finance or ‘factoring’ is a popular alternative finance option that allows small and medium-sized enterprises (SMEs) to access cashflow early while they wait on outstanding invoices.  

Key points about invoice finance 

  • Invoice funding has simple eligibility requirements and is available to most Australian businesses
  • 26% of construction and trades businesses use invoice finance, according to Lend proprietary data
  • Recourse factoring is the most common type of factoring agreement
  • Factoring fees range from 3% to 8% of the invoice value (much cheaper than a bank loan) 

What is invoice finance? 

Invoice finance is a cash advance or line of credit secured against outstanding invoices. Businesses can sell their unpaid invoices to a third-party company (or factor) and get up to 80% of their value in advance. The lender will then collect the payment(s) from clients and pay the business the remainder of the invoices, keeping a percentage as their fee. 

This alternative financing option allows businesses to unlock cash tied up in unpaid invoices instead of taking on a business loan that will accrue interest. It's also typically much easier to qualify for invoice factoring as it doesn’t require collateral, a perfect business credit score, or a long trading history.

Pro tip: Invoice factoring is not confidential by default, so choose your provider carefully if you don’t want customers notified of the financing arrangement. Invoice factoring is sometimes referred to as invoice discounting or debtor finance.  

Compare invoice finance options

Advance on invoice
Facility limit
Factor fee
ABR Finance Logo
$10K - $300K
Determined on application
30-90 days
ScotPac Logo
Invoice Money Logo
Up to 90%
$3K - $1m
Flat or split rate
14-90 days
EarlyPay Logo
$50K - $15m
Determined on application
30-90 days
Butn Logo
Up to 85%
From $5K
Fixed fee
30-90 days
APositive Logo
Up to 100%
$0 - $20m
Flat fee or split rate
30-120 days
Moneytech Finance Logo
Up to 90%
$150K - $20m
PAYG fee structure
30-120 days
Octet Logo
Up to 85%
$0 - $20m
Determined on application
Determined on application
Information, rates and specs correct as of October 2023. 

Who’s eligible for invoice finance? 

Invoice finance is available to Australian businesses who have:  

  • An active ABN or ACN
  • A minimum of $1,000 in outstanding invoices per month
  • Customers must be invoiced after the goods or services are provided
  • At least six months of trading history 

How much can you borrow with invoice finance?

  • Invoice financing facilities range from $1,000 and up to $1million
  • The amount you can borrow can’t exceed the value of your invoices (minus the factor’s fee)

Invoice finance rates (factor fees) 

Invoice factor fees are calculated as a percentage of the invoice amount — usually between 3% and 8%. There may be other costs such as admin charges, invoice processing fees, money transfer fees, etc. 

Fees will vary between lenders and conditions specific to your business and customers, including:  

  • The volume of invoices you’re factoring
  • The value of those invoices
  • The creditworthiness of your customers
  • Your industry and business model
  • The payment terms – you’ll obviously pay more for an invoice due in 90 days than one payable within 30 days. 

How invoice finance works  

Here's a simple example of how invoice finance works: 

Receive Invoices from your Customers
You send an invoice to a client for $20,000 & submit the invoice to the factor (usually via an online portal)
Provide your Bank Statements
The factor company checks the invoice and verifies you supplied the goods or services listed
Prepare your Business Loan
They charge you a fee of 3% of the invoice amount
Get a Business Loan Quick
The factor pays you a majority of the invoice amount in advance (80%)
Get a Business Loan
The factor collects the payment from the customer on your behalf
Business Loans - Get the Money
The factor pays you the remaining invoice amount (17%) minus their fee

Here is a factoring example in real dollars for a $20,000 invoice. 

Invoice value $20,000
Fee (3%) $600
Initial advance (80% of invoice value after fee)
Remaining amount (17%) $3,880
Total finance $19,400

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Types of invoice factoring in Australia 

The two main types of invoice factoring are recourse and non-recourse, available through a whole ledger factoring or spot factoring agreement.  

Recourse vs non-recourse factoring

Recourse factoring is the most common type of invoice factoring whereby your business remains responsible for any invoices your customers fail to pay. In this case, you would buy back the outstanding receivables and chase up the debt(s) yourself. Recourse factoring is usually cheaper and easier to access than non-recourse factoring because your business carries the debt risk. The factor does not take on the risk of bad debts. 

Non-recourse factoring is when you sell the debt and risk to the factor, so the factoring company becomes responsible for pursuing customers who still need to make their payments. In exchange, they charge you a higher fee and may impose stricter criteria for your invoices and customers. Only some factors will offer this option, and it’s likely that it will only be offered for invoices where customers have a solid credit record.  

Whole ledger factoring vs spot factoring

Whole ledger factoring, also known as whole turnover factoring, allows your business to draw down funds against your entire accounts receivable (often with a discount). 

Spot factoring allows you to pick and choose which invoices you want to sell or sell individual invoices, giving you much more flexibility (often at a higher cost).

Invoice factoring vs invoice discounting

Invoice factoring is when you sell your unpaid invoices to a factoring company outright, while invoice discounting works similarly to a loan secured against your outstanding invoices. This is an important distinction because invoice discounting allows for confidentiality (since you retain ownership of your invoices), while factoring is harder to hide from your customers.  

Pros & cons of invoice finance  

Pros Cons
  • Immediate cash injection – sometimes within 24 hours
  • The factor is responsible for credit control and collection of the debt
  • Invoice financing is usually confidential
  • Availability depends more on your customers’ credit rating than your own, so even startups and businesses with bad credit may be able to access factoring
  • Factoring isn’t a loan, so you won’t be taking on debt or paying interest – and it won’t show up on your balance sheet
  • The instant cashflow means your business can offer longer payment terms to customers and suppliers
  • Some factoring providers let you can pick and choose which invoices you sell and when – giving you total flexibility and the ability to get a quick cash injection when you need it
  • If you opt for non-recourse factoring, you’ll avoid the risk of late payments or bad debts
  • Quick and easy to arrange – usually no lengthy application process or onerous criteria
  • Can be more expensive than other forms of short term finance, especially where there are hidden charges. Be sure that you know the total cost, including admin fees, transfer charges and any penalties before you choose a provider
  • Factoring reduces the profit margin on the invoices you sell
  • Some factors may use aggressive collection methods that may damage customer or supplier relationships
  • The availability and cost of factoring depends on your customers’ credit ratings. Some lenders may seek to restrict you from doing business with certain customers
  • With recourse financing, you will have to buy back any invoices the factor couldn’t collect payment on
  • The availability of factoring as a source of finance may fluctuate for seasonal businesses
  • If you decide to end your arrangement with the factor, you’ll have to buy back any unpaid invoices, which could impact your cashflow
  • With recourse factoring, you’re responsible for the debt if your customers don’t pay
  • Some providers will seek to lock you into long-term contracts where you must sell them a minimum volume of invoices or all invoices for particular customers. This can be detrimental to your business, especially if there are heavy penalties for breaking the contract

Invoice finance companies in Australia  

Here is a list of popular invoice finance companies in Australia:

  • ABR Finance 
  • ScotPac 
  • Invoice Money
  • Earlypay
  • Butn
  • APositive
  • Moneytech 
  • Octet Finance 

How to apply for invoice finance  

When applying for invoice finance, you’ll need to complete a simple application form and supply supporting documents, including: 

  • Identification documents
  • Business registration information
  • Copies of the invoices you want to factor
  • A report for your accounts receivable, showing how frequently customers pay their invoices
  • Access to your accounting system 
  • Business bank statements 

Factoring is generally quick and easy to set up since your business is not taking on debt. You won’t have to go through the rigorous application and appraisal process you’d expect with other types of business finance or bank loans. The turnaround time for invoice finance approval is usually 24 hours or more. Once you’ve been approved, you can start factoring your invoices right away. Use our business loan calculator to see how invoice finance can help your business.

Is invoice factoring right for your business? 

Invoice factoring is the best option for businesses who need quick cashflow or have upfront costs piling up and need a cash advance while waiting for customer payments. For example, if you have to pay for your raw materials, transport costs and wages before receiving payment from your customers, factoring can give you the cash to cover those costs as they fall due. 

It can also benefit businesses in industries where customers expect long payment terms (e.g. construction, etc.) or where offering extended payment terms for certain suppliers can give your business a competitive advantage. 

Top industries for invoice finance in 2023 

According to Lend proprietary data, the industries applying for invoice finance in 2023, include:

  • Constructions & trades: 26%
  • Professional services: 13% 
  • Retail: 8%
  • Manufacturing: 8%
  • Wholesale: 7% 

Small business invoice finance 

Invoice factoring is often the financing option of choice for small businesses who experience cashflow fluctuations or who don’t have any cash reserves to stretch until invoices are paid. It can also help small businesses who scale too quickly when expenses exceed working capital. It's sometimes the only option for businesses struggling to access other financing types, such as startups. Take the time to understand how to apply for a business loan and what to watch out for. 

FAQs about invoice finance

What does factoring mean?

Factoring is a type of debtor finance. A factor is a third party that finances outstanding invoices. The factor will buy your invoices at a discount, and then collect the full invoice amount from your customer(s). Factors can be banks or independent finance companies.

Who offers invoice factoring?

Both banks and an ever-growing number of small business online lenders offer invoice factoring. Some online lenders specialise in invoice factoring and offer more flexibility with single invoice finance. Other finance providers will offer a full suite of business finance options alongside invoice factoring, including a business line of credit or unsecured business loans.

Is there a difference between invoice financing and invoice factoring?

The difference between invoice financing and factoring comes down to flexibility and confidentiality. With invoice financing, your business can borrow against outstanding invoices and you get to choose which invoice(s) you finance and when. You deal directly with your customers for repayments which means the financing arrangement remains confidential. On the other hand, invoice factoring involves selling your invoices to a factoring company at a discount. The factoring company will employ a debt collection service to chase up unpaid invoices on your behalf. This allows for less confidentiality since customers will be contacted by a third party to make payment(s).

Will my customers know I’m using an invoice factor company?

Invoice factoring is not confidential by default, so be sure to speak to your provider if you’re concerned about it. Generally, standard factoring will indicate to customers their invoices have been sold. However, there are plenty of companies that offer confidential invoice discounting facilities.

Who is responsible for collecting payment from the customer?

The factor will be responsible for collecting payment from your customers. However, if you’re using recourse factoring, you’ll have to buy back any unpaid invoices from the factor and chase up any outstanding debts from your customers yourself.

What happens if a customer pays the business instead of the factor?

Mistakes happen, but you must notify the factoring company you’ve sold your invoices to if a customer accidentally pays you instead of them, or you may be in breach of your contract agreement.

What happens if a customer doesn’t pay an invoice to a factor?

Your factoring company should make every effort to collect invoice payments on your behalf, but your type of factoring agreement will dictate what happens if your customers fail to pay their invoice(s). 

With recourse factoring, you’ll be required to buy back unpaid invoices and collect outstanding debts yourself. With non-recourse factoring, the company remains responsible for seeking payments and will have to accept the loss if customers don't pay. This is why this option typically incurs higher fees to offset the risk.

1. Proprietary data of small businesses who applied for invoice finance through and have been operating for at least five years (2023). 

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