Invoice finance: getting paid now for work you've already done

How does invoice finance work?

You do the work, you send the invoice, and then you wait — 20 days, 30 days, sometimes 60 or more. Invoice finance shortens the wait. A financier advances you a large share of the invoice’s value soon after you issue it. When your customer pays, the financier releases the balance to you, minus its fees.

It’s a fast funding option with an unusual feature: it scales. The more you invoice, the more funding is available. A loan is fixed at the amount you borrowed; invoice finance grows as the business does.

Factoring or discounting — what’s the difference?

	Invoice factoring	Invoice discounting
Who collects from customers	Usually the financier	You
Do customers know?	Usually yes	Usually no
Typical user	Smaller or newer B2B businesses	Larger, established businesses with good systems
Can be selective (single invoices)	Often	Less often
Admin for you	Lower	Higher

Some providers also offer selective or spot invoice finance, where you finance individual invoices rather than your whole ledger. That’s useful for a one-off large job.

Who does invoice finance suit?

It suits businesses that:

• invoice other businesses, government or organisations, not consumers;
• have creditworthy customers who pay reliably but slowly;
• are growing, so the working capital gap keeps widening;
• don’t have property to secure a loan, or don’t want to use it.

Typical industries include labour hire, transport and logistics, manufacturing, wholesale, professional services and some construction (though progress claims and retentions make construction more complicated).

It’s a poor fit for businesses selling to consumers, those with one or two customers making up almost all of their invoicing (concentration risk), or those whose invoices are often disputed.

What does it cost?

Invoice finance pricing varies a lot between providers, and you’ll usually see a mix of:

• a service or administration fee, often linked to the value of invoices;
• a charge on the money advanced, for the time it’s outstanding;
• setup fees, and sometimes minimum monthly fees.

The only sensible comparison is the total dollar cost over a typical month for your invoice volume. Ask each provider to model it for you using your real numbers. Our guide on comparing fast loan quotes works for invoice facilities too.

Also check the GST treatment with your accountant. If your business is registered for GST — required once turnover reaches $60,000 in a 12-month period — the timing of GST on invoices you’ve financed still matters for your returns.

What gets registered?

Almost all invoice financiers register a financing statement on the Personal Property Securities Register, the online noticeboard of claims against personal property. Some register over receivables only; some over all present and after-acquired property. That matters if you later want other finance, so ask exactly what will be registered and what the financier will agree to release or subordinate.

How does it compare with a loan or a line of credit?

	Invoice finance	Line of credit	Unsecured loan
Limit grows with sales	Yes	No	No
Depends on customers’ credit	Yes	No	No
Setup speed	Moderate	Moderate	Fast
Speed after setup	Fast	Near-instant	Apply again
Best for	Slow B2B payers	Recurring short gaps	One-off costs

For the full comparison with a revolving facility, see invoice finance vs line of credit.

Illustrative example. An Auckland labour-hire firm pays its workers weekly but invoices clients monthly on 30-day terms. As it adds clients, the gap between paying wages and getting paid grows to more than seven weeks. Invoice finance against its client invoices lets it pay wages from advances on last week’s invoices, and the facility grows automatically as new clients come on.

If your customers are the reason you’re short, tell us about your debtors and we’ll tell you whether invoice finance or something simpler fits.

What are the downsides of invoice finance?

It’s a good tool, but not a free one, and it has some quirks worth knowing before you sign:

• Concentration limits. If one customer makes up most of your invoices, the financier may cap how much it advances against that customer. Businesses with one dominant client often find the facility smaller than expected.
• Disputes and credit notes. If customers regularly dispute invoices or you issue lots of credit notes, the financier will advance less, or exclude those invoices.
• Minimum terms and fees. Some facilities have minimum monthly fees or a minimum contract period. If your need is short-lived, a one-off loan may be cheaper.
• Customer relationships. With factoring, your customers deal with the financier on payments. Most businesses find this fine, but some prefer confidential discounting.
• Exit costs. Leaving a facility can involve notice periods and paperwork to release the PPSR registration.

None of these are deal-breakers. They’re questions to ask so the facility you get is the facility you expected.

When is a simple loan better than invoice finance?

If your slow-payer problem is a one-off — one big job, one unusually slow customer — a short-term business loan repaid when that customer pays is often simpler and cheaper than setting up a whole facility. Invoice finance shines when the gap is permanent and grows with your sales; a loan shines when the gap has a clear end date. If your problem is really about cash tied up across stock, wages and debtors together, our working capital loans page looks at the bigger picture.

What do financiers check?

• Your aged debtors list: who owes what and for how long.
• Your customers’ payment history and creditworthiness.
• Sample invoices and contracts, to make sure invoices are genuine and collectable.
• Any existing security interests on the PPSR.
• Your own trading history and bank statements.

See whether your invoices can fund you

If slow-paying customers are your main cash-flow problem, invoice finance might be the most natural fix — or a short loan might be simpler. Enquiring won’t involve a credit check, and your details won’t be passed to a stack of financiers; one specialist reviews them and calls you. Give us an accurate picture of who your customers are and how long they take to pay, and we’ll point you to the right option first time. Start your application.