Invoice Finance

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Invoice Finance with Money Matchmaker
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In our invoice finance guide:













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
  • Construction
Invoice finance with Money Matchmaker

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 very useful if your business has reliable customers
Minimum requirements for a business loan

Who is eligible for invoice finance?

  • Own a business and have an ABN
  • Business is GST-registered
  • Citizen or permanent resident
  • Minimum business-operating time of six months
  • Business has invoices outstanding with customers
Invoice finance explained

How does invoice finance work? 7 steps

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

  1. You send an invoice to a customer for $20,000
  2. You send the invoice to the factor
  3. The factor company agrees to charge you a fee of 3% on the invoice amount
  4. The factor advances you a majority of the invoice amount in advance (85%)
  5. The factor awaits payment from your customer
  6. The customer makes payment to the factor
  7. The factor pays you the remaining invoice amount (12%) minus their fee.

Invoice finance example

Invoice amountFactor fee (3%)Advance (85%)Remaining (12%)Total finance






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.

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.

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How to 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 work in the tables below.

Recourse versus non-recourse factoring compared

Recourse factoringNon-recourse factoring
  • You sell the debt but the risk remains with you
  • The factor is responsible for pursuing the debt
  • If your customer doesn’t pay their invoice, you will have to buy back the invoice from the factoring company, and chase up the bad debt yourself
  • Most factors will offer it
  • Eligibility criteria not as strict
  • You sell the debt and the risk to the factor
  • The factor is responsible for pursuing the debt
  • You can expect to pay higher fees
  • Not every factor will offer it
  • It’s likely that it will only be offered for invoices where your customer has a solid credit record

Whole ledger factoring versus spot factoring compared

Whole ledger factoringSpot factoring
  • You are required to sell all invoices relating to a particular customer or company
  • Low flexibility
  • Lower fees
  • Allows you to pick and choose which invoices you want to sell
  • High flexibility
  • Higher fees

Invoice finance fees (factor fees)

Invoice finance uses a ‘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.

How to compare invoice financing providers

  • Advance fees — if your company is financially secure, you’ll likely receive a rate around 3%. However, if a lender has reason to believe your customers are at risk of not paying, they may increase this significantly.
  • Additional fees — transaction fees or early payment discounts applied to your customer invoices.
  • Penalties — each lender will have an individual policy around non-payment or late payment from your customers. It’s crucial you understand these to ensure you aren’t left with an unserviceable debt.
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How to qualify for a loan in Australia

How to qualify and apply

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.

While many different types of businesses can apply, it is often most beneficial to businesses that have to pay up-front costs to operate.

Invoice finance application

Most lenders will be able to provide invoice finance if you have:

  • Been trading for at least 6 months; and
  • Have an ABN (Australian Business Number); and
  • Are registered for GST; and
  • Operate a business that invoices customers; and
  • Use an accounting software program (i.e. Xero, MYOB)

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

Popular questions 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.

Business Loan guides and resources

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Written by

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Loans Expert

Shaun McGowan

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Sean Callery Editor


Sean Callery