Invoice and Debtor Finance to Get Paid Sooner

How invoice and debtor finance works

Invoice finance lets a business borrow against invoices it has issued to other businesses but has not yet been paid for. The funder advances a large share of each invoice up front, commonly up to about 80 percent. When your customer pays, the funder takes back what it advanced plus its fees and passes the rest on to you.

Debtor finance is the same idea applied to the whole sales ledger. Instead of picking invoices one at a time, the facility funds your eligible invoices as they are raised, and the amount available rises and falls with your sales. Single invoice finance, sometimes called selective invoice finance, lets you fund only the invoices you choose, which suits a business with the occasional large customer.

You will also hear factoring and invoice discounting. With factoring, the funder usually manages collections and your customers pay the funder. With invoice discounting, you keep collecting and your customers may never know a funder is involved.

Who it suits

What funders look at

Who your customers are

Your customers' ability to pay matters as much as yours. Invoices to established, creditworthy businesses and government bodies are the easiest to fund.

Business to business sales

Invoice finance is built for invoices to other businesses. Sales to consumers are generally not eligible.

The quality of the ledger

Clean invoicing, clear payment terms and few disputes or credit notes. Invoices that are well overdue, often past 90 days, are usually excluded.

Customer concentration

If one customer makes up most of your sales, some funders cap how much of that customer's debt they will fund.

Your systems

Many funders connect to your accounting software, which speeds up setup and the funding of new invoices.

Typical terms

Common ranges, not promises. Every funder sets its own policy.

• Advance: commonly up to about 80 percent of each eligible invoice, with the balance paid to you, less fees, when your customer pays.
• Discount fee: an interest-style charge on the money you have drawn, usually calculated daily.
• Service fee: a percentage of invoice value or a set monthly amount, to cover running the facility.
• Contract: whole ledger facilities often have a minimum term and a notice period. Single invoice funding generally has no lock-in.
• Security: the invoices themselves, often alongside a general security over business assets and a director's guarantee.
• Limit: tied to your sales ledger, so it rises as the business invoices more.

An example

Invoice finance, line of credit or term loan?

What to have ready

• An aged receivables report from your accounting software
• A customer list with payment terms
• Recent BAS and business bank statements
• Company and director details
• Sample invoices and any customer contracts
• Details of any existing finance with security over business assets

Invoice finance questions

Looking at something else? See the business line of credit for a general cash buffer, business term loans for a one-off amount, or business loans for the full picture.