Quick answer
Invoice discounting is a form of invoice finance where a business borrows against its unpaid customer invoices but keeps collecting the money itself. Customers usually aren't told a funder is involved. The funder advances a percentage of eligible invoices, commonly around 80%, and releases the balance, less fees, once customers pay. It suits established B2B businesses with a sizeable debtor ledger and sound credit control.
Key points
- You borrow against your receivables but keep the customer relationship and collections
- Usually confidential: customers keep paying into an account you operate
- The advance is a percentage of eligible invoices only, not the whole ledger
- Suits established B2B businesses; the funder normally registers security on the PPSR
If you sell to other businesses on 30, 45 or 60-day terms, you’re effectively lending your customers money until they pay. Invoice discounting lets you borrow that money back from a funder straight away, using the unpaid invoices as security, while you carry on sending statements and chasing payments exactly as before.
How a discounting facility runs
- You issue invoices as normal and report them to the funder, usually through a link to your accounting software.
- The funder works out which invoices are eligible and makes a percentage of them available to draw, commonly up to about 80%.
- You draw what you need, when you need it.
- Customers pay into a nominated account. Those payments reduce what you owe, and the remaining 20% or so, less fees, flows back to you.
Because it’s ongoing, the facility grows and shrinks with your sales. A busy quarter creates more invoices and more available funds, which is why it’s popular with wholesalers, manufacturers, labour hire firms and transport operators.
Invoice discounting vs factoring
Both sit under the umbrella of invoice finance. The difference is who talks to your customers.
| Invoice discounting | Factoring | |
|---|---|---|
| Who collects | You | The funder |
| Customers told | Usually not | Usually yes |
| Typical client | Established, larger ledger, solid credit control | Smaller or newer businesses |
| Admin on you | Higher: you run collections and reporting | Lower |
There’s a fuller breakdown in invoice factoring vs invoice discounting.
Why “80%” is rarely 80% of everything
The headline advance applies to eligible debts only, and that’s where expectations come unstuck. Here’s how it can look for a Brisbane food wholesaler with $500k in aged receivables:
| Ledger item | Amount | Eligible? |
|---|---|---|
| Total invoices outstanding | $500k | |
| Invoices more than 90 days old | −$40k | No |
| Owed by a related company | −$25k | No |
| One supermarket customer above a 30% concentration limit | −$60k | No |
| Eligible debts | $375k | |
| Available at an 80% advance | $300k |
So the owner who expected $400k has $300k to work with. Cleaning up overdue accounts and spreading sales across more customers lifts availability over time. Try your own ledger in our invoice finance calculator.
Wondering how much your debtor book could unlock? Send us the outline and we’ll give you a realistic figure.
What funders look at
Expect questions about your customer mix, the age profile of your debtors, credit notes and disputes, how quickly invoices get paid and how tidy your bookkeeping is. Funders usually take security over the debts through an assignment of debts and a general security registration under the Personal Property Securities Act, so existing lenders with a security interest may need to agree to a priority arrangement first.
Related terms
Debtor finance, receivables, debtor days, working capital and PPSR.
Is your money stuck in unpaid invoices?
Slow-paying customers shouldn’t stop you taking on the next order. If a confidential facility against your invoices sounds right, or you’d like to compare it with other working capital options, our short form takes roughly a minute. Asking won’t leave a mark on your credit file, and we don’t spray enquiries across the market. One specialist reviews the details and gives you a call. Include your real ledger size and largest customers so the first answer is accurate.
Frequently asked questions
What's the difference between invoice discounting and factoring?
With factoring, the funder buys or takes over your invoices and usually chases the customers, who are told about the arrangement. With invoice discounting you keep collecting, and the arrangement normally stays confidential. Discounting tends to need a larger, better-run ledger.
Will my customers know?
Usually not. Confidential discounting is the standard set-up. Customers pay as normal, often into a bank account controlled by or reported to the funder. Some facilities become disclosed if collections slip or the business breaches its terms.
Which invoices don't count?
Funders commonly exclude invoices past a set age (often around 90 days), invoices to related parties, progress claims or retentions on building contracts, overseas debtors without insurance, and any amount above a concentration limit for a single customer. The rules vary by funder.
What does invoice discounting cost?
Usually two parts: a charge on the money you've actually drawn, and a service or administration fee, sometimes with a monthly minimum. Ask for a dollar estimate based on your average ledger and typical drawings so you can compare it with an overdraft or line of credit.
Is it a loan?
It works like a revolving facility secured by your receivables. You draw funds as invoices are raised and the balance reduces as customers pay. Legally the funder takes an assignment of or security over the debts, usually backed by a general security registration on the PPSR.