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Best Invoice Finance Options & Rates

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What is invoice finance?

Invoice finance is a common form of business finance in Australia, where a business sells its invoices to a lender or third-party company (known as a factor) who advances a large portion of the invoice amount to the business.

It allows a business to access funds quickly, without taking on a business loan that will accrue interest. It also doesn’t require collateral and the amount you can borrow will be relative to the value of your invoices (minus the factor’s fee).

The factor facilitating the finance is a third party that buys invoices from businesses for a portion of the invoice value, then collects full payment from the customer and pay the business the remainder of the invoice, keeping a pre-agreed percentage as their fee.

In Australia, invoice finance is often used by companies experiencing regular payment delays from customers, including labour hire, manufacturing, mining services, commercial property services and construction.

Why choose invoice finance?

  • It's easy to set up
  • It's offered by a variety of business finance lenders
  • Once set up, it offers very fast access to cashflow (smoothing over cashflow is the most common reason businesses apply for finance according to business lending data)
  • It's highly beneficial to small businesses or those operating with upfront costs
  • It uses outsourced payment collection for a small fee
  • Can be particularly useful if your business has reliable customers

One potential drawback of invoice finance is the fact that by selling your invoices to a third party, your business loses control over part of its sales process. This may impact the relationship with customers who are now dealing with your factor company.

For this reason, some business choose to keep their invoice payment collection in-house and use other sources of short-term business finance instead, including the likes of unsecured business loans and options for accessing a revolving business line of credit from a lender – for example, through a business overdraft.

Who is eligible for invoice finance?

You can qualify for invoice finance if you operate a business that provides a service or product to customers without immediate payment — i.e. your business sends an invoice to customers.

Here are some of the other main eligibility criteria:

  • Own a business and have an ABN
  • Business is GST-registered
  • You are a citizen or permanent resident
  • Your business has been operating for at least six months
  • Business has invoices outstanding with customers
  • Uses an accounting software program (i.e. Xero, MYOB)

How does invoice finance work? (7 steps)

Here's a simple example demonstrating how invoice finance works:


You send an invoice to a customer for $20,000


You send the invoice to the factor


The factor company agrees to charge you a fee of 3% on the invoice amount ($600)


The factor advances you a majority of the invoice amount in advance (85% or $17,000)


The factor awaits payment from your customer


The customer makes payment to the factor


The factor pays you the remaining invoice amount (12% or $2,400) minus their fee.

The amount you can receive from invoice finance will depend on the value of your invoices and the willingness of the factor to take them on. In general, most factors will advertise a maximum amount of $1,000,000 although some lenders offer a maximum amount of $100,000,000.

Compare invoice finance options

Invoice finance is often available either as recourse or non-recourse factoring, and through a whole ledger factoring or spot factoring agreement. You can see how these works below, starting with recourse versus non-recourse factoring compared.


Recourse factoring

With recourse factoring, you sell the debt to a factor who pursues the debt. But the risk remains with you. If your customer doesn’t pay their invoice, you will have to buy back the invoice, and chase it up yourself. This form of invoice finance can be easier to be approved for.


Non-recourse factoring

You sell the debt as well as the risk to the factor, meaning the factor is responsible for the debt. For this reason, you can expect to pay higher fees and not every factor will offer it. It’s generally only offered on invoices where your customer has a solid credit record.


Whole ledger factoring

With whole ledger factoring, you are required to sell all invoices relating to a particular customer. This is more restrictive but the fees are generally lower.

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Spot factoring

Spot factoring allows you to pick and choose which invoices you want to sell. This gives you greater flexibility but there tend to be higher fees.

Invoice finance fees (factor fees) and other costs

The main cost of invoice finance is the ‘factor fee’ — a percentage of the invoice amount, and will generally be between 1.5% - 4.5%. The factor fee is the amount taken by the lender in return for their factoring services.

Factor fees will vary depending on the lender, the agreed invoice financing term, the volume of invoices you are factoring, and more.

There are also other considerations specific to your business and customers that will impact the invoice finance fee that applies, including:

  • The creditworthiness of the customer
  • The reliability of payment from customers
  • The industry your business operates in
  • The payment terms of your invoices — you’ll pay more on an invoice due in 90 days than one due in 30.

Applying for invoice finance

The process for setting up invoice finance is fairly simple. As your business won’t be taking on any debt, approval should be quicker than a standard loan application (with less emphasis on your credit score and history), and will often require less-exhaustive documentation. You’ll need to complete a simple application form and supply supporting documents.

Documents required when applying for invoice finance:

  • Proof of identity
  • An ABN and GST registration
  • A list of your customers
  • Copies of the invoices you want to factor
  • A report for your accounts receivables, showing how frequently customers pay their invoices
  • Business bank statements

Business loan guides and resources

Learn more about your business finance options and how to get the funding you need to grow your business.

More FAQs about invoice finance

If your factoring company using invoice discounting, then their collection method to customers will be anonymous. Generally, standard factoring will indicate to a customer that their invoices have been sold. Factoring companies will indicate which type of collection they use, so be sure to research carefully if this is a major concern for your business.

If you’ve sold your invoices to a factoring company and the customer accidentally pays you instead, it’s important that you indicate this to the factoring company as soon as possible. If you remain transparent in the process, you’ll maintain a healthy relationship with the factor.

The factor will be responsible for collecting payment from your customers. However, depending on the type of invoice finance you agree to, you may be required to buy back any unpaid invoices from the factor and seek to collect payment from customers yourself.

This depends on which type of invoice finance (factoring) agreement you enter into.

With recourse factoring, the company you sold the invoice to may have the right to sell the invoice back to you, in which case it will be up to you to take further action to seek payment from the customer.

If it's a non-recourse factoring agreement, the company who purchased the invoice is responsible for seeking payment and would need to take its own steps to collect payment from the customer.

Sean Callery Editor Money.com.au

Written by

Sean Callery

Sean Callery is the Editor of Money.com.au. He has over 15 years of international experience. He is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821) and is compliant to provide general advice in Tier 1 General Insurance (RG 146) products.

Shaun McGowan Money.com.au founder

Reviewed by

Shaun McGowan

Shaun McGowan is the founder of Money.com.au. He's determined to help people and businesses pay as little as possible for financial products, through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.


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