Invoice Finance Australia: Complete Guide to Debtor Finance & Factoring 2025

Invoice finance (also called debtor finance or factoring) allows businesses to unlock cash tied up in unpaid invoices. Instead of waiting 30-90 days for customers to pay, you can access up to 85% of invoice value within 24 hours.

What is Invoice Finance?

Invoice finance provides immediate cash against your unpaid invoices:

How it works:

1. You complete work for customer
2. Issue invoice (30, 60, or 90 day terms)
3. Submit invoice to finance company
4. Receive 70-85% cash advance (within 24 hours)
5. Customer pays invoice (to you or finance company)
6. Receive remaining 15-30% less fees

Types of businesses using invoice finance: ✅ B2B service companies ✅ Wholesalers and distributors ✅ Manufacturing businesses ✅ Recruitment agencies ✅ Import/export companies ✅ Construction subcontractors ✅ Professional services

Types of Invoice Finance

1. Invoice Factoring

You sell your invoices to the finance company:

How it works:

• Customer pays the finance company directly
• Finance company manages your debtor ledger
• Your customers know you're using factoring
• Most comprehensive service

Features:

• Advance rate: 70-85%
• Fees: 1-3% of invoice value
• Credit management included
• Bad debt protection available

Best for: Businesses wanting full outsourced debtor management

2. Invoice Discounting

Confidential financing - customers don't know:

How it works:

• You still collect payments from customers
• Finance company advances against invoices
• Customers pay you as normal
• You repay finance company
• Confidential arrangement

Features:

• Advance rate: 70-85%
• Fees: 0.5-2% monthly
• You maintain customer relationships
• More control over collections

Best for: Established businesses wanting confidential funding

3. Selective Invoice Finance (Spot Factoring)

Finance specific invoices only:

How it works:

• Choose which invoices to finance
• Not all invoices need to be financed
• Pay per invoice used
• Flexible solution

Features:

• Advance rate: 70-90%
• Fees: Higher per invoice (2-5%)
• No ongoing commitment
• Use as needed

Best for: Businesses with occasional cash flow gaps

4. Trade Finance

Finance goods in transit or on order:

How it works:

• Finance company pays your supplier
• You receive goods
• Sell goods to customer
• Repay finance company from sale proceeds

Features:

• Advance rate: 70-100% of supplier invoice
• Fees: 1-3% monthly
• Enables bulk purchasing
• Improves margins

Best for: Import/wholesale businesses

Invoice Finance Rates & Costs 2025

Costs vary by business risk and invoice size:

Factoring Costs

Typical structure:

• Discount fee: 1-3% of invoice value
• Administration fee: $200-$1,000/month
• Credit check fees: $5-$20 per debtor

Example $100,000 invoice (60 days):

• Discount fee (2%): $2,000
• Admin fee: $500/month
• Total cost: $2,500 (2.5% of invoice)

Discounting Costs

Typical structure:

• Discount rate: 0.5-2% per month on drawn amount
• Facility fee: 0.25-0.5% of facility limit
• Unused line fee: Sometimes

Example $100,000 facility, $80k drawn:

• Monthly fee (1.5% on drawn): $1,200/month
• Facility fee (0.3% on $100k): $300/month
• Total: $1,500/month

Spot Factoring Costs

Per invoice:

• Discount fee: 2-5% of invoice value
• Application fee: $0-$100 per invoice

Example $50,000 invoice:

• Fee (3.5%): $1,750
• One-time cost, immediate access to $42,500

How Invoice Finance Works

The Funding Process

Day-by-day timeline:

Day 1: Complete work

• Deliver service/goods to customer
• Issue invoice ($100,000, 60 day terms)

Day 2: Submit to finance company

• Upload invoice to portal
• Provide delivery/completion proof
• Credit check on debtor (if new)

Day 3: Receive advance

• Finance company approves invoice
• Transfer 80% = $80,000 to your account
• Immediate cash flow improvement

Day 62: Customer pays

• Customer pays $100,000 (to finance company or you)
• Finance company deducts fees: $2,000
• You receive balance: $18,000
• Net received: $98,000 (cost: $2,000)

Approval Requirements

Much easier than bank loans:

What you need: ✅ ABN and trading 6-12+ months ✅ B2B customers (not consumers) ✅ Invoices with payment terms ✅ Customers with good credit ✅ Not in formal insolvency

Documents required:

• Recent debtor aging report
• Sample invoices
• Bank statements (3 months)
• Customer list with payment history
• Proof of delivery/work completion

Credit focus:

• Your customer's credit matters more than yours
• Finance company assesses debtor creditworthiness
• Your bad credit often OK if customers pay well

Advance Rates

How much you get upfront:

Typical advance rates:

• Standard: 70-85% of invoice value
• Strong customers: Up to 90%
• Higher risk: 60-75%

Factors affecting rate:

• Customer creditworthiness
• Invoice size and number
• Payment history
• Industry risk
• Your business strength

Example scenarios:

Scenario 1: Strong customer (major corporation)

• Invoice: $100,000
• Advance rate: 85%
• Immediate cash: $85,000

Scenario 2: Medium customer (established SME)

• Invoice: $50,000
• Advance rate: 80%
• Immediate cash: $40,000

Scenario 3: Higher risk customer

• Invoice: $30,000
• Advance rate: 70%
• Immediate cash: $21,000

Invoice Finance vs Bank Loans

Invoice Finance Advantages

Compared to overdrafts/business loans:

✅ No fixed debt - Only pay for invoices financed ✅ Grows with sales - Funding increases as you grow ✅ Fast approval - 48 hours vs 6 weeks ✅ Bad credit OK - Focus on customer credit ✅ Flexible - Use as much or little as needed ✅ No directors guarantees (often) ✅ No property security required

When Invoice Finance Makes Sense

Good fit when:

• Customers pay in 30-90 days
• You need cash now for wages, suppliers, growth
• Bank won't lend due to credit/security issues
• Growing fast and need scalable funding
• Seasonal business with lumpy cash flow
• Want to offer longer payment terms to customers

Not suitable when:

• Customers are consumers (B2C)
• Cash on delivery terms
• Very small invoices (<$5,000)
• Customer credit is poor
• Invoices frequently disputed

Industry-Specific Invoice Finance

Recruitment Agencies

Perfect fit for recruitment:

• Staff paid weekly
• Clients pay 30-60 days
• Large cash flow gap

Typical arrangement:

• Advance: 85-90%
• Fees: 1.5-2.5%
• Credit management included
• Weekly funding cycles

Construction Subcontractors

Progress claim financing:

• Fund progress payments
• Receive 70-80% advance
• Wait for head contractor payment

Typical arrangement:

• Advance: 70-80%
• Fees: 2-3.5%
• Lien/retention handling
• Defect holdback management

Manufacturing & Wholesale

Inventory + invoice finance:

• Finance raw materials
• Finance finished goods
• Finance customer invoices
• Complete supply chain funding

Typical arrangement:

• Advance: 75-85%
• Fees: 1.5-3%
• Stock finance available
• Trade finance integration

Professional Services

IT, consulting, marketing agencies:

• Project-based work
• Long payment terms
• Lumpy cash flow

Typical arrangement:

• Advance: 75-85%
• Fees: 1.5-2.5%
• Milestone payment handling
• Retainer management

Recourse vs Non-Recourse Factoring

Recourse Factoring (Standard)

You bear the credit risk:

How it works:

• If customer doesn't pay, you must repay advance
• Lower fees
• You keep bad debt risk

Costs:

• Cheaper (1-2.5%)
• Standard arrangement
• More common

Best for: Customers with good payment history

Non-Recourse Factoring

Finance company bears credit risk:

How it works:

• If approved customer doesn't pay, finance company wears loss
• Credit insurance included
• Higher fees

Costs:

• More expensive (2.5-5%)
• Peace of mind
• Bad debt protection

Best for:

• Export/international invoices
• New or unknown customers
• Want to eliminate bad debt risk

Invoice Finance vs Purchase Order Finance

Often confused - here's the difference:

Invoice Finance

• When: After work completed, invoice issued
• What: Finance against existing invoice
• Use: Improve cash flow on completed work

Purchase Order (PO) Finance

• When: Before work starts, order received
• What: Finance to fulfill the order
• Use: Fund materials/labor to complete work

Example combined:

1. Receive $100k order
2. Use PO finance to buy $60k materials
3. Complete work, issue invoice
4. Switch to invoice finance
5. Repay PO finance from invoice advance
6. Receive balance when customer pays

Tips for Successful Invoice Finance

Before You Apply

1. Clean up debtors - Collect old debts, remove bad ones
2. Document processes - Clear invoicing and delivery proof
3. Know your numbers - Average invoice size, payment days
4. Check customers - Their credit matters most
5. Compare providers - Rates and terms vary widely

Getting Approved

6. Accurate debtor aging - Up-to-date ledger critical
7. Proof of delivery - Delivery dockets, signed work orders
8. Customer quality - Major customers = better terms
9. Clear invoices - Professional, detailed invoices
10. Payment history - Show customers pay within terms

Managing the Facility

11. Invoice promptly - As soon as work complete
12. Submit quickly - Get funding faster
13. Accurate reporting - Update aging monthly
14. Monitor customers - Flag payment issues early
15. Use strategically - Don't over-rely, plan to refinance

Common Invoice Finance Mistakes

1. Hiding Invoice Finance from Customers

Customer notices anyway Looks secretive Damages trust

✅ Solution: Use invoice discounting if confidentiality important, or be upfront about factoring

2. Financing Disputed Invoices

Finance company won't pay if dispute Must repay advance Fees still apply

✅ Solution: Only finance clean, undisputed invoices with proof of delivery

3. Not Reading the Contract

Locked into 12-24 month term Termination fees apply Can't switch providers

✅ Solution: Understand minimum terms, exit fees, flexibility

4. Over-Advancing

Drew 85% on $500k invoices Customers paid $450k (disputes/credits) Owe $75k to finance company

✅ Solution: Conservative advances, quality invoices only

5. Wrong Type of Finance

Used invoice finance for retail business (B2C) Not suitable for consumer sales High fees, doesn't work

✅ Solution: Confirm B2B sales with payment terms before applying

Alternatives to Invoice Finance

Other funding options to consider:

Trade Credit Insurance

• Protects against bad debts
• Customers pay you directly
• No cash advance
• Lower cost (0.1-0.5%)

Bank Overdraft

• Lower cost if you qualify (8-12%)
• Requires good credit, security
• Fixed limit doesn't grow with sales

Debtor Finance Loan

• Loan secured by debtor book
• You collect, no factoring
• Bank provides cash advance
• Cheaper but stricter criteria

Early Payment Discounts

• Offer 2-3% discount for 7-day payment
• Customers pay faster
• Costs less than factoring
• Maintains relationships

Invoice Finance for Startups

Can new businesses access invoice finance?

Yes, but:

• Need 6-12 months trading
• Must have B2B customers
• Need clean invoices
• Higher fees initially

Startup-friendly options:

• Selective invoice finance
• Small facility ($50-250k)
• Personal guarantees likely
• 3-6 month trial period

Costs for startups:

• Fees: 2.5-4% (higher than established)
• Admin: $500-1,000/month
• Setup fee: $1,000-2,000

Export Invoice Finance

Financing international sales:

Challenges:

• Longer payment terms (90-120 days)
• Foreign exchange risk
• International credit checks
• Cross-border collections

Solutions:

• Export factoring (specialized)
• Non-recourse preferred
• Currency hedging available
• Trade credit insurance

Costs:

• Higher fees (2.5-4%)
• FX fees apply
• International credit checks
• Letters of credit alternative

Tax & Accounting Considerations

How invoice finance affects your books:

Accounting Treatment

Invoice factoring:

• Invoice is sold (off balance sheet)
• Reduces debtors
• Increases cash
• Fees expensed

Invoice discounting:

• Invoice stays on your books
• Shown as loan against debtors
• Increases cash and liabilities
• Interest expensed

Tax Deductibility

Fees are tax deductible: ✅ Discount fees ✅ Interest charges ✅ Admin fees ✅ Credit check fees

Talk to accountant about:

• Correct classification
• GST treatment
• Monthly reporting
• Year-end adjustments

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