Debtor finance: turning your whole debtor ledger into a working capital line

Picture a labour-hire firm with $640k sitting in unpaid invoices and a payroll of $95k due every Thursday. On paper it is doing well. In the bank account it is always a week from trouble, because its clients pay on 45 days and its workers expect to be paid on seven. Debtor finance exists for exactly this mismatch: it lets the business draw on money it has already earned, instead of waiting for customers to get around to paying.

This page explains how a debtor finance facility is actually sized, the invoices that quietly fall out of the calculation, what it costs in dollars and when another product would serve you better.

How does debtor finance work?

You sign a facility agreement with a debtor financier, which takes security over your receivables (the amounts customers owe you). Each time you raise an invoice, it is uploaded or synced from your accounting software into the facility. The financier advances a share of the eligible invoice value, typically somewhere between 70% and 85%, into your bank account, often within a day.

When the customer pays, the money lands in an account the financier controls. The financier keeps what it advanced plus its fees and releases the balance to you. Because new invoices keep arriving as old ones are paid, the facility revolves: your available funds rise when sales rise and shrink in a quiet month.

There are two ways to run it:

• Disclosed (usually called invoice factoring): customers are told to pay the financier, and the financier may also chase collections for you.
• Confidential (usually called invoice discounting): you keep collecting, customers pay into an account in your name, and the arrangement stays in the background.

Why is my available funding lower than the headline advance rate?

This is the part most owners don’t see coming. The advance percentage only applies to eligible debts, and every financier keeps a list of invoices it won’t count. Common exclusions:

Usually excluded	Reason
Invoices older than about 90 days from invoice date	The older a debt gets, the less likely it is to be paid in full
Related-party debts	Money owed by a company you or your family control isn’t an arm’s length sale
Contra accounts	If a customer is also your supplier, it can offset what it owes you against what you owe it
Disputed or part-delivered work	The customer may have a reason not to pay
Progress claims and retentions	Common in construction; the amount isn’t final until the work is certified
Amounts above a concentration limit	If one customer is a large share of your ledger, the excess may not be funded
Overseas customers	Some financiers exclude them or need credit insurance first

A worked example shows the gap. Suppose the ledger totals $640k. Take out $55k of invoices past 90 days, $30k owed by a sister company and $40k from one client that also supplies you, and the eligible ledger is $515k. Now say one customer makes up $230k of that, and the facility caps any single debtor at 30% of the eligible ledger (about $155k). The other $75k drops out, leaving $440k. At an 80% advance, available funds are around $352k, not the $512k the headline rate suggested.

Ask every provider to run this calculation on your actual aged debtors report before you sign. Our invoice finance calculator lets you test the numbers yourself, and the concentration limit entry explains why one big customer can cap the line.

What does a debtor financier check?

Debtor finance is assessed differently from a bank loan. Your own balance sheet matters, but your customers’ reliability matters more.

What they look at	What helps
Who your customers are	Established companies, government bodies, a spread of names rather than one or two
How fast customers pay	A clean aged receivables report with little past 60 days
Invoicing quality	Invoices raised only once work is delivered, with clear terms and purchase order numbers
Credit notes and disputes	A low level of credits issued after the fact
Existing security	Whether a bank or other lender already holds a general security agreement
Tax position	Unpaid ATO debt can rank awkwardly against the financier, so many want a payment plan in place

One insight worth using: if your major customers are large companies, look them up on the Payment Times Reports Register. Groups turning over $100m or more lodge regular reports on their payment speed to small suppliers, and since 1 July 2024 each group files one consolidated report. A financier will have its own data, but checking first tells you whether a customer that “always pays eventually” pays in 30 days or 70, which changes both your cost and your available funds.

How much does debtor finance cost?

We don’t publish rates, and pricing varies widely between providers. What you’ll usually see is a combination of:

• A service or administration fee, often charged monthly or as a small share of invoices funded. It covers ledger management and, for factoring, collections.
• A discount or interest charge on the money you’ve actually drawn, calculated daily until each invoice is paid.
• Set-up costs such as legal documents, PPSR registration and an initial audit of your ledger.
• Other charges that can apply: minimum monthly fees, early termination fees, fees for unused limits and charges for invoices that go past the recourse period.

The dollar cost depends on how long customers take to pay. If the labour-hire firm draws $300k and its customers stretch from 45 to 60 days, it pays the discount charge for an extra fortnight on every dollar. Ask each provider for an estimate in dollars a month on your real ledger, and put those figures through the loan cost comparison calculator.

Minimum terms and minimum fees deserve as much attention as the headline price. A cheaper discount charge with a 12-month lock-in and a high monthly minimum can cost more than a slightly dearer facility you can leave on 30 days’ notice.

Not sure your ledger would qualify? Tell us about your receivables; the form is short, and filling it in leaves no mark on your credit history.

Pros and cons of debtor finance

What works well

• The limit grows with sales, which a fixed loan can’t do.
• No property needed: your invoices are the security.
• Approval leans on customer quality, so newer businesses and those with a patchy credit history can qualify.
• Funding often arrives within 24 hours of invoicing once the facility is running.

What to weigh

• Ongoing reporting and reconciliation take time each week.
• The financier will hold security over receivables, and often a general security agreement over the business, which can limit other borrowing.
• Lock-in periods and minimum fees can make it costly to leave.
• If customers pay slowly, cost rises and available funds fall at the same time.

Is debtor finance right for my business?

It tends to fit when three things are true: you invoice other firms on account, your customers are creditworthy and pay reliably, and the cash gap is ongoing rather than a one-off. Wholesalers, manufacturers, transport operators, recruitment and labour-hire firms, and professional services businesses are common users. See how lenders view wholesalers and distributors and freight and logistics businesses.

It’s a poor match for retail-facing businesses paid at the counter, for ledgers riddled with queried invoices, or where you need a lump sum for one purchase. For a single big outlay, a business term loan or a business line of credit may be simpler. Our debtor finance vs business loan comparison sets the trade-offs side by side, and the broader invoice finance page covers single-invoice options.

Specialists in this space profiled here include ScotPac, Earlypay and Invoice Money. Banks offer debtor finance too, and if your bank is willing, its pricing is often worth taking seriously.

How to set up a facility

1. Pull your aged debtors report and a customer list with payment history for the last six to twelve months.
2. Clean up the ledger. Chase or write off very old debts, issue missing credit notes and fix duplicate customer records.
3. Check your existing security. Find out whether a bank or lender holds a general security agreement that covers receivables, and ask about a priority deed early.
4. Compare at least two offers on available funds (after ineligibles), dollar cost, minimum fees and exit terms.
5. Complete the audit and documents. Expect a review of sample invoices and, sometimes, verification with a few customers.
6. Connect your accounting software so invoices flow into the facility without double handling.

From slow-paying customers to a conversation that helps

If your business is profitable but always waiting on customers, a ledger-backed facility can be the difference between chasing cash and planning with it. The tricky part is matching your particular customer mix to a financier whose eligibility rules suit it.

Matching ledgers to financiers is our daily work. Our form asks a handful of questions, roughly sixty seconds’ worth, and sending it runs no check against your credit history. Nobody shops your ledger around a panel of funders behind your back: a specialist here studies your figures personally and rings to talk them over. Quote your real ledger total, your biggest customers and their actual payment habits, because honest numbers let us land on a workable facility at the first attempt.

Check what your invoices could unlock →