Quick answer
Invoice finance lets a business get paid early on unpaid invoices. You send an invoice to the financier, it advances a large share of the value within a day or so, your customer pays the financier on the due date, and the financier releases the remainder less its fees. The cost depends on how long invoices stay unpaid, so work it out in dollars per invoice.
Key points
- You borrow against what customers already owe you, so the facility grows as sales grow
- Most of the invoice is advanced upfront and the balance, the rebate, follows when the customer pays
- Factoring means the financier collects from your customer, discounting means you keep collecting
- The financier registers its interest on the PPSR, and an existing bank security can complicate that
- Total cost depends on how long invoices take to be paid, so slow payers are the expensive ones
You delivered the work in July. Your invoice says 30 days. The customer’s accounts team pays on day 58. In between, you have paid wages, suppliers and the ATO from your own pocket.
Invoice finance exists for that gap. Not because the money is missing, but because it’s sitting in someone else’s account. This guide explains the mechanics step by step, the fees, and the traps, in the order you’ll meet them.
What happens, step by step?
Picture a business that invoices other businesses on 30-day terms.
- You deliver and invoice. A normal tax invoice goes to your customer, with the financier’s payment details if it’s a factoring arrangement.
- You upload or notify the invoice. Most financiers use an online portal that connects to your accounting software, such as Xero or MYOB.
- The financier checks it. It confirms the invoice is eligible: a genuine B2B sale, within age limits, not disputed, and owed by a customer it’s comfortable with.
- You receive the advance, often within a day. It’s a percentage of the invoice, not the whole amount.
- The customer pays, either into the financier’s account (factoring) or your account that the financier controls (discounting).
- The financier releases the rebate. The remaining balance less fees comes back to you.
Then the cycle repeats. The facility is revolving: as old invoices are paid, new ones replace them. That’s what separates it from a term loan, where you borrow a lump and repay it.
What is the advance, the reserve and the rebate?
On a $50,000 invoice with an 80 per cent advance:
| Stage | Amount |
|---|---|
| Invoice value | $50,000 |
| Advance paid to you on day 1 | $40,000 |
| Held back (the reserve) | $10,000 |
| Customer pays the financier | $50,000 |
| Fees deducted | Varies, see below |
| Rebate paid to you | $10,000 less fees |
The reserve is the financier’s cushion. It covers fees and any shortfall if the customer pays less than the invoice. The advance rate depends on the quality of the customers: blue-chip debtors with good payment records can attract a higher advance than small customers who pay erratically.
Factoring or discounting: who collects?
This is the biggest structural choice.
- Invoice factoring. The financier takes over collection. Your customers pay it directly. Customers know, the financier can chase, and you save admin time. Smaller businesses often start here.
- Invoice discounting. You keep the customer relationship and collect payment yourself, and the financier funds against the invoices. Often confidential. It generally requires a good ledger, sound credit control and more established turnover.
Many Australian providers offer both. Our comparison of invoice factoring and invoice discounting goes through who each suits.
A second distinction is recourse. In a recourse arrangement, if the customer doesn’t pay, you must buy the invoice back or repay the advance. In a non-recourse arrangement, the financier absorbs some credit losses, usually for a higher fee and under conditions. Non-recourse is rarer than people expect: read the small print about what counts as a covered loss, since many cover insolvency of the debtor only, not disputes.
What does it cost?
We don’t quote rates, and you shouldn’t compare facilities on percentages alone. Fees usually come in a few parts:
- A service or administration fee, often calculated on invoice value or turnover.
- A discount or funding charge, which accrues for the time the money is out. The longer the invoice is unpaid, the more you pay.
- Set-up, audit or ledger-review fees.
- Minimum volume or minimum fees, which apply when you use the facility less than agreed.
- Termination fees if you leave early.
Ask the provider to work out a sample cost in dollars. Here’s how that looks with illustrative numbers: a $50,000 invoice, 80 per cent advanced, with a service charge of $750 and a funding charge that accrues at $18 per day while the $40,000 advance is outstanding.
| Customer pays on | Days outstanding | Funding charge | Service charge | Total cost |
|---|---|---|---|---|
| Day 30 | 30 | $540 | $750 | $1,290 |
| Day 58 | 58 | $1,044 | $750 | $1,794 |
| Day 90 | 90 | $1,620 | $750 | $2,370 |
Those figures are made up to show the shape. The lesson is real: your slowest-paying customers cost the most. Our invoice finance calculator lets you test your own numbers, and debtor days explains how to measure how slow your customers actually are.
Think about the cost against the margin on the job. If the finance costs $1,794 on a $50,000 job, but the work earned a $9,000 margin and the alternative was turning down the next job for lack of cash, the decision is simple. If the margin is $2,000, it isn’t.
What does the financier register, and why does the bank care?
Invoice financiers take security over your receivables, and they protect it by registering on the PPSR. Some register over the receivables only, others over all your present and after-acquired property.
If your bank already holds a general security agreement over everything, a second financier registering over receivables creates a conflict of priority. Banks and invoice financiers typically solve it with a priority or intercreditor deed, which takes time and your bank’s cooperation. So the first practical step is to tell your bank manager. Many banks are comfortable, particularly if the facility is carved out cleanly; some prefer to offer their own invoice facility. If your bank can fund the invoices at a competitive cost, take that seriously, since banks are often the cheapest option.
The PPSR entry explains how registration works.
Wondering whether your bank’s security will get in the way? Describe your set-up here and a person can tell you whether it’s likely to be an issue.
Which businesses use invoice finance?
Typically B2B firms with invoices outstanding for 14 to 90 days: labour hire and recruitment, transport and logistics, wholesalers and distributors, manufacturers, security and cleaning contractors, and professional services that bill after delivery.
It’s used less in businesses that take payment at the point of sale, such as retail, hospitality and most consumer services, and in work where the customer pays at milestones that can’t be invoiced until a certificate is signed off.
According to the World Factoring Yearbook 2026, Australian invoice finance and factoring volume reached about $95bn in 2025, but the amount of funding actually deployed to small and medium businesses was only around $7.5bn, suggesting that many eligible businesses still don’t use it. That is a trade publication estimate rather than an official statistic, so treat it as indicative.
A worked example: a labour hire firm funds a payroll gap
Illustrative only. A Brisbane labour hire firm places 40 workers with three clients. Wages go out weekly, but clients pay 30 to 45 days after invoice. When a fourth client signs, payroll grows by $22k a week, and the firm runs short before the first invoice is paid.
The firm sets up a whole-ledger factoring facility. Invoices go up each Friday; 85 per cent comes back on Monday morning, funding Tuesday’s payroll. The financier takes over collection, and two of the clients ask who the new payment contact is, which the owner explains with a brief note.
Over a quarter, the owner tracks the total fees in dollars against the margin on the new contract and finds the contract still clears a healthy profit even after the funding costs. After a year, with a clean ledger and longer trading history, the firm asks about moving to a confidential discounting facility to take back collection.
What can go wrong?
- Ineligible invoices. If part of your ledger doesn’t qualify, your funding is smaller than you planned.
- Customer concentration. If one customer makes up most of your sales, the financier may cap how much it funds against that name.
- Disputes. A disputed invoice is usually withdrawn from funding, and you may have to repay the advance.
- Minimums and lock-ins. Contract terms can run for 12 months or more with notice periods.
- A ledger you can’t see. Insist on reporting that shows what’s funded and what you owe.
Taking the next step
If your customers pay slowly and you’re growing, it’s worth finding out whether an invoice facility, an overdraft or another option makes sense. Our enquiry takes about a minute and doesn’t involve a credit check, so asking is free of consequence for your credit file. We don’t send your information off to a long list of financiers. A real person reads about your invoices and customers, and calls to talk through what fits.
Getting the details accurate, such as your typical invoice sizes, customer payment times and any existing bank security, means the option we suggest first is likely to be the right one.
Frequently asked questions
How much of the invoice do I get upfront?
Most facilities advance a large majority of the invoice value, commonly somewhere between 70 and 90 per cent, and the financier decides the figure based on your customers, your industry and the quality of the invoices. The remainder, less fees, is paid when your customer settles.
Will my customers know I use invoice finance?
It depends on the type. In factoring, customers are told to pay the financier, so they know. In confidential invoice discounting, you keep collecting in your own name and customers may not know. Some businesses choose confidential arrangements, though they usually suit larger, more established firms.
What invoices can't be financed?
Common exclusions are invoices to related parties, consumer sales, invoices already past a set age (often 90 days), disputed invoices, progress claims without a certified completion, and amounts offset by what you owe the same customer. Each financier sets its own list.
Is invoice finance a loan?
Legally it can be structured as a sale of the invoice or as a loan secured over your receivables. Commercially it behaves like a revolving facility that rises and falls with your invoicing. Your accountant will want to know how it is treated in your accounts.
Do I have to finance every invoice?
Not with every provider. Whole-ledger facilities cover all your invoices, while selective or spot facilities let you choose individual invoices to fund. Whole-ledger usually costs less per invoice, and selective offers flexibility, so ask which each provider offers.