The Complete Guide to Invoice Finance in Australia

Invoice finance allows you to borrow against outstanding invoices, accessing up to 85-95% of invoice value within 24 hours rather than waiting for customer payment. The remaining balance (minus fees) is paid when your customer settles. Unlike traditional loans, your invoices serve as security, meaning you typically do not need property collateral. The facility grows automatically as your sales grow, making it ideal for scaling businesses.

With invoice factoring, you sell your invoices to a finance provider (factor) who takes over collections. The factor advances you up to 95% of invoice value upfront and collects payment directly from your customers. Your customers are aware of the arrangement and pay the factor rather than you. This suits businesses wanting to outsource credit control and collections, freeing internal resources to focus on core operations.

Invoice discounting is a loan secured against your invoices where you retain control of collections. Customers pay you directly and may not know about the financing arrangement, making it confidential. Advance rates are typically around 85% with lower fees than factoring. This suits businesses with established credit management processes who want to maintain direct customer relationships while accessing working capital.

Most invoice finance is recourse, meaning you must buy back unpaid invoices (typically after 90 days) if customers do not pay. Non-recourse factoring means the factor assumes risk of non-payment due to customer insolvency. However, non-recourse does not cover payment disputes, only bankruptcy or insolvency. Non-recourse comes with higher fees and lower advance rates but provides protection against bad debts.

Invoice finance costs include a factor fee (discount fee) of 1.5-4.5% of invoice value plus interest of 7.99-20% p.a. on advanced funds. Additional costs may include debtor protection fees (0.30-0.50% for non-recourse), administration fees, and minimum volume fees. The effective cost depends on how quickly your customers pay. Faster payment means lower total interest charges.

Invoice finance works best for B2B businesses with reliable commercial customers on 30-90 day payment terms. Industries commonly using invoice finance include labour hire, manufacturing, transport, construction, and wholesale. It suits businesses experiencing growth where cash is constantly tied up in receivables. It may not suit businesses with consumer customers, very short payment terms, or those in industries with high dispute rates.

Applications typically require 6-12 months trading history, your debtor ledger showing outstanding invoices, bank statements, and identification. Lenders assess the credit quality of your customers rather than just your business. Approval can occur within days and once set up, you can draw against invoices immediately when they are raised. The facility limit adjusts as your sales volume changes.