Invoice financing explained

Invoice financing is a type of business loan with reduced risk, as it's secured by outstanding invoices. Unlike other types of business lending, there are no interest payments or asset requirements, and finance is limited to the size of the invoices.

How does invoice financing work?

Invoice financing is a type of receivables finance and includes invoice factoring and invoice discounting. Invoice discounting is where you select specific invoices to send to the finance company, whereas factoring involves the finance company having your full invoice ledger and collecting all the debts when they're due.

If you choose specific invoices to finance, you will receive a certain percentage of the invoice, usually 80-90%, within 24 hours. The remainder of the invoice will be transferred to you when the customer pays, minus the invoice company's advance fee.

Invoice factoring is usually settled monthly, but there are a number of different types you can consider.

What sort of fees can I expect?

• Due diligence fees. Costs covering credit checks and other work needed to advance funds. These can range from a few hundred to a few thousand dollars.
• Service fee. A one-time fee charged to every invoice you submit for financing. It's based on the total value of the invoice and ranges anywhere from 0.1% to 20%.
• Discount rate. A percentage rate charged on the advanced funds. It's calculated daily and charged monthly. Despite the name, this is a fee you'll pay to the invoice factoring company.

Is my business eligible for invoice financing?

Invoice financing suits a range of businesses, including the following:

• Smaller businesses. Late payments to small businesses are a real issue and invoice financing offers a way to ensure businesses get paid on time. It also helps with planning as they know how much they will be charged to bring forward invoice payments.
• Larger businesses. Invoice financing is also used by larger businesses and corporations as a cash flow tool to ensure late payments do not negatively affect the running of the business.
• Seasonal businesses. Cash flow can be tricky for all businesses, but this is true for seasonal businesses in particular. Invoice financing offers a way for businesses with seasonal lulls to bring forward payments to keep things moving.

A few pros and cons you might want to consider

In spite of its differences with credit cards, loans and overdrafts, invoice financing is still a form of borrowing and as such it comes with both benefits and drawbacks.

Compare invoice financing products

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Product	Finder Score	Min. Loan Amount	Max. Loan Amount	Loan Term	Upfront Fee	Filter Values
Promoted Finder Score 8.2 Great ScotPac Invoice Finance	Finder Score 8.2 Great	$10,000	$150,000,000	From 1 year	No set amount		Improve your business cash flow by financing your outstanding invoices. No minimum trading history required, but minimum 12 - month term and $10,000 in invoices.	Go to siteMore info Compare product selection Compare	loading
Promoted Finder Score 9.6 Excellent Valiant Finance Business Loan Broker	Finder Score 9.6 Excellent	$5,000	$20,000,000	3 months to 7 years	$0 application fee		A Business Lending Specialist from Valiant Finance can give you access to competitive business loans from over 80 lenders. Loans between $5,000 and $20 million are available. Request a call – your loan can be funded in 1 business day.	Enquire nowMore info Compare product selection Compare	loading
Finder Score 7.2 Great ScotPac Selective Invoice Finance	Finder Score 7.2 Great	$10,000	$1,000,000	1 to 3 months	$500		Finance your unpaid invoices on demand with terms of 1 - 3 months. 95% of invoice is paid upfront, with no minimum trading history required.	Go to siteMore info Compare product selection Compare	loading
Finder Score 4.5 Basic BankSA Vehicle and equipment finance	Finder Score 4.5 Basic	$15,000	No maximum amount	1 to 7 years	upon application		This loan can be used to hire, lease or purchase vehicles or equipment for your business, with borrowing amounts from $15,000.	ContinueMore info Compare product selection Compare	loading
Finder Score 4.5 Basic Quickapay Invoice Finance	Finder Score 4.5 Basic		No maximum amount				ContinueMore info Compare product selection Compare	loading
Finder Score 4.2 Basic ABR Finance	Finder Score 4.2 Basic	$10,000	$300,000	1 to 3 months	20%		ContinueMore info Compare product selection Compare	loading
Finder Score 4.5 Basic Fifo Capital Business Finance Supply Chain and Trade Finance	Finder Score 4.5 Basic		No maximum amount	3 to 5 months			ContinueMore info Compare product selection Compare	loading
Finder Score 4.5 Basic Fleetcare Business Fleet finance and leasing	Finder Score 4.5 Basic		No maximum amount				ContinueMore info Compare product selection Compare	loading
Finder Score 8.5 Great Stratton Finance Business Car Loan	Finder Score 8.5 Great	$10,000	$300,000	1 to 7 years	$482		A business vehicle loan for up to $300,000, with flexible contract terms and fast turnaround times.	ContinueMore info Compare product selection Compare	loading
Finder Score 5.2 Standard Fifo Capital Business Finance Invoice Finance and Factoring	Finder Score 5.2 Standard	$5,000	$500,000				ContinueMore info Compare product selection Compare	loading
Finder Score 7.2 Great Westpac Invoice Finance	Finder Score 7.2 Great	$500,000	No maximum amount				ContinueMore info Compare product selection Compare	loading
Finder Score 5.3 Standard Octet Trade Finance	Finder Score 5.3 Standard	$100,000	$12,000,000	1 month to 2 years	Transaction fee 2.5%		Access a line of credit to pay suppliers in over 65 countries. Borrow from $100,000 up to $12,000,000.	ContinueMore info Compare product selection Compare	loading
Finder Score 5.5 Standard Royal Finance Secured Business Loan	Finder Score 5.5 Standard	$50,000	$5,000,000	2 months to 1 year	depends on amount borrowed		Get access to a loan from $50,000 to $5,000,000 with Royal Finance. Standard loan terms range from 2 months to 1 year, extensions are also available.	ContinueMore info Compare product selection Compare	loading
Finder Score 4.5 Basic Naritas Commercial Finance	Finder Score 4.5 Basic		No maximum amount				ContinueMore info Compare product selection Compare	loading
Finder Score 7.4 Great Funding Pro Invoice Discounting	Finder Score 7.4 Great		No maximum amount	1 to 3 months			ContinueMore info Compare product selection Compare	loading
Finder Score 7 Great Bigstone Asset Finance	Finder Score 7 Great	$10,000	$2,000,000	1 to 5 years	$250		Borrow up to 100% of the value of your assets with no ongoing fees and the option for low doc finance.	ContinueMore info Compare product selection Compare	loading
Finder Score 7 Great Funding Pro Trade Finance	Finder Score 7 Great		No maximum amount	2 to 4 months	2% establishment fee		ContinueMore info Compare product selection Compare	loading
Finder Score 6.1 Standard Earlypay Equipment Finance	Finder Score 6.1 Standard	$50,000	$1,500,000	2 to 5 years	$750 - Establishment fee		Upgrade or expand your business's equipment with equipment finance from Earlypay. Borrow from $50,000 to $1,500,000.	ContinueMore info Compare product selection Compare	loading
Finder Score 7.3 Great Invoice Financing Australia	Finder Score 7.3 Great	$50,000	$5,000,000				ContinueMore info Compare product selection Compare	loading
Finder Score 7.2 Great Single Invoice Finance	Finder Score 7.2 Great		No maximum amount		3 to 5%		ContinueMore info Compare product selection Compare	loading

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How to compare invoice financing providers

As with other types of business lending and credit platforms, there are several factors you should consider and compare in order to select the best invoice financing provider for you. Here are a few things to keep in mind:

• Advance fees. These are typically charged at up to 3% of each invoice. However, funding providers may increase this if they view your company as less financially secure, for example, if you have a poor credit rating.
• Additional fees. Some invoice financing providers will charge you exchange and transaction fees along with discount fees from early payment offers made to your clients.
• Loan amount. Many invoice financing providers are set up to offer a personal, efficient service to small businesses, but may also be able to cater to large companies with a higher quantity of invoices. Funding will also increase as the business and invoices grow.
• Repayment options. Make sure you know each provider’s policy on late repayments, just in case a client lets you down.

The types of invoice factoring are available

There are three main types of invoice factoring, so it's important to choose the one that best suits your business:

• All-of-turnover invoice factoring. This is for businesses that want a long-term solution for invoice factoring, with providers usually offering their services on a 12-month contract. Although not very flexible, all-of-turnover invoice factoring can offer the highest possible turnover rates with the lowest fees.
• Partial ledger invoice factoring. Partial ledger invoice factoring will also require you to sign a contract, but it also offers more flexibility. You can choose to capitalise on your invoices at particular times during the year and even ask your provider to focus on processing invoices from select clients.
• Spot factoring. This could be the right kind of factoring if you need to process a single batch of invoices. While not being tied to a contract can be a good thing, you can be charged multiple fees and a high advance rate by a provider keen to capitalise on your limited business.

What's the difference between disclosed and confidential invoice factoring?

There are three important differences that separate disclosed and confidential invoice factoring.

• A change of bank details. Before any invoice factoring can take place, your clients will need to be given the details of an account used by the factoring company to receive the invoice payment in your name. In a disclosed arrangement the financing facility will provide this information while outlining their role in controlling your invoices. Businesses using a confidential service can choose to notify their clients of this change of details without divulging the reason behind it.
• No assignment notice. All disclosed factoring agreements require customers to include a written notice with their invoices, confirming their payment is for the factoring company. In the case of confidential invoice factoring, this is not asked for.
• No customer communication. By agreeing to a confidential service, finance facilities give up the right to contact your clients in order to chase up payments. This can appeal to directors who are concerned that the interference of a third party could damage customer relations.

Still got questions?

• Will my customers know I'm using an invoice financing company?

  This will depend on your provider. Some offer a completely confidential service while others will want to verify your clients. Having your provider in contact with your clients can be useful, as they can help you to chase up those that have unpaid invoices. Just make sure they don't communicate with clients in a way that could undermine your relationship with them.

• Whose job is it to collect the invoice from the customer?

  While the invoice financing company might approach your customers, it remains primarily your responsibility to have the invoice paid. Once it is, you will usually receive your residual share within 24 hours.

• What if a client transfers an invoice to me instead of the financing company?

  Different companies will have their own policies, but you will likely need to notify them as soon as possible and transfer the funds into the correct account to avoid any negative marks on your credit file.

• What if a customer doesn't pay their invoice?

  This will depend on your invoice financing provider. Some providers will cover the cost but increase future fees while others offer packages whereby you choose whether to bear responsibility.

Written by

Elizabeth Barry

Journalist

Elizabeth Barry is an experienced journalist with over 10 years of expertise in personal finance, contributing to outlets like the ABC, Sydney Morning Herald, and 7News. She holds a Master of Arts in Creative Writing and a Bachelor of Arts in Communication from the University of Technology Sydney, and has earned multiple award nominations, including a Highly Commended recognition at the 2017 Lizzies. Elizabeth began her career at Finder in 2013, progressing through roles to become Lead Editor, where she oversaw a wide range of personal finance coverage until 2024. See full bio

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Elizabeth has written 208 Finder guides across topics including:

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