For many businesses, waiting on clients to pay can make it hard to cover immediate costs. Invoice finance helps you unlock the value tied up in unpaid invoices, giving you faster access to funds so you can keep cash flow steady and your business moving forward.
What is invoice financing?
Invoice finance is a flexible form of business funding that helps you turn outstanding invoices into immediate working capital. Instead of waiting for customers to pay, a lender advances a percentage of the invoice value, giving you fast access to funds. It can be a useful short-term solution for managing cash flow, covering operating expenses or funding new opportunities without taking on long-term debt.
To access the funds, you simply submit your unpaid invoices to the finance provider for review. Once approved, you’ll receive an advance based on their value, while the remaining balance is held until your customer pays. Depending on the facility, customers will either pay the provider directly (factoring) or your business (invoice discounting), and the remaining amount is released to you, minus any applicable fees.
In simple terms you’re selling your accounts receivable to another party for access to instant funds.
Types of invoice finance
There are two main forms of invoice finance: invoice factoring and invoice discounting. Both let you access funds against your outstanding invoices, but they differ in how payments are collected and who manages customer relationships.
Invoice factoring
Invoice factoring involves selling your unpaid invoices to a third-party finance provider, which then takes over responsibility for collecting payment from your customers. You’ll typically receive up to 95% of the invoice value upfront, with the remainder paid once your customer settles the invoice, minus any fees.
You can also choose to fund individual invoices rather than your whole ledger, known as spot factoring. This gives you more flexibility, with no ongoing commitment or long-term contract, and lets you access cash from specific invoices as needed.
Invoice discounting
Invoice discounting is structured more like a loan secured against your outstanding invoices. You retain ownership of the debt and remain responsible for chasing customer payments. The lender advances up to 85% of the invoice value, and once the customer pays, the remaining balance (less fees) is released to you.
Here’s how the two compare:
| Invoice factoring | Invoice discounting | |
|---|---|---|
| Advance amount | Up 80% of invoice value | Up to 85% of invoice value |
| Fees | Higher fees, often up to 5% of the invoice value | Lower fees, typically up to 2.5% of the invoice value |
| Who collects payments | The finance provider | Your business |
| Who manages customer relationship | The finance provider deals directly with your customers | You retain direct contact with customers |
| Customer awareness | Customers are aware of the arrangement | Usually confidential |
| Best suited to | Businesses without a collections process | Businesses with the time and systems to manage their own debts |
How much does invoice finance cost?
There are several charges to consider when using invoice finance. The main fees are:
- Discount or factoring fee: this is the main cost of invoice finance. Some lenders quote it as an annual rate charged on the funds advanced, while others quote it as a percentage of the invoice value. Where percentage-based pricing is used, rates typically range from around 1% to 2.5% for invoice discounting and 1.5% to 5% for invoice factoring, depending on the provider and facility.
- Administration/service fee: this is an ongoing fee for managing your facility. It is usually charged as a percentage of each invoice submitted, around 0.5% to 1.5%, although some lenders may also charge a minimum monthly fee regardless of invoice volume.
- Setup or establishment fee: this is a one-off cost to get your facility up and running, though may not be charged by all lenders.
Depending on your provider, you may also face additional charges, such as fees for late payment or default.
Let's look at how these fees would work in practice:
You run a small electrical contracting business and have completed a $50,000 commercial fit-out for a client. The invoice is on 35-day payment terms, but you still need to cover wages, supplier costs and other day-to-day expenses in the meantime.
To avoid waiting more than a month to be paid, you submit the invoice to an invoice finance provider. They advance you 80% of the invoice value within 24 hours, giving you $40,000 upfront to support your cash flow.
| Fee | Rate | Cost |
|---|---|---|
| Administration fee | 1.5% of invoice value | $750 |
| Discount fee | 2% of invoice value | $1,000 |
| Total fees | $1,750 |
When your client pays the invoice on day 35, the lender releases the remaining $8,250 to you. This is the reserve – the 20% balance ($10,000) held back at the time of the advance minus $1,750 in fees.
Note: The figures above are illustrative. Actual rates vary between lenders and depend on factors like your industry, invoice volume, customer creditworthiness and the size of your facility.
The invoice finance process with Savvy
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Start your quote
Click through to our online form and select the ‘Working Capital’ option to begin your invoice finance application.
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Provide your details
Share some basic information about you, your business and your funding requirements.
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Speak to a broker
Your details will be passed to our team and one of our experienced brokers will get in touch to discuss your options.
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Get the finance you need
Once approved and set up, you can access the funds you need to support your cash flow and business growth.
Why apply for a business loan with Savvy?
The pros and cons of invoice finance
Pros
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Fast access to funds
Applications can be completed quickly, with funding possible in as little as 24 hours.
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Easier approval
Invoice finance may be more accessible than traditional loans, especially for newer businesses.
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Improves cash flow
You can unlock working capital tied up in unpaid invoices to cover expenses or invest in growth.
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No additional collateral required
Your invoices act as the security, making it suitable for businesses without significant assets.
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Collections support
With invoice factoring, you can outsource debt collection and avoid awkward customer interactions.
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Easily integrates with accounting software
Many providers use accounting platforms like Xero, MYOB and QuickBooks to automate key processes and help speed up approvals.
Cons
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Costs can add up
You’ll pay a fee based on a percentage of the invoice value, and additional charges such as establishment fees may also apply.
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Not suitable for all businesses
Finance may not be available if you have low invoice volumes, poor credit or unreliable customers.
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Liability for defaults
If your customer doesn’t pay, you may be responsible for the full amount.
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Customer relationship risks
Outsourced collections could damage client relationships if handled poorly.
Which businesses are eligible for invoice finance?
Invoice finance is typically suited to businesses that issue invoices for payment after goods or services are delivered, rather than receiving payment upfront. It’s especially popular among small to medium-sized enterprises (SMEs) that experience cash flow gaps due to delayed customer payments. Industries that commonly use invoice finance include:
- Manufacturing
- Construction
- Wholesale and distribution
- Recruitment and labour hire
- Transport and logistics
- Business services (e.g. marketing, IT, consulting)
To qualify, you’ll need to meet your finance provider’s minimum requirements around business trading history, turnover and customer base. Most providers look for:
- Established trading history: you’ll usually need to have been actively trading for at least six months, though some providers may require 12 months or more.
- Minimum turnover: this may be assessed monthly or annually, with some providers requiring at least $10,000 in monthly invoicing to be eligible.
- Reliable customer base: since repayment is tied to your customers settling their invoices, providers will often assess the reliability of your debtors as part of the application.
Is invoice finance the right option for my business?
Invoice finance can be a practical option for businesses that regularly invoice clients on credit terms but need faster access to funds. It’s especially useful if you want to maintain cash flow without taking on long-term debt or using other assets as security.
You might consider invoice finance if you:
- Have short-term cash flow challenges but a reliable, creditworthy customer base
- Want to avoid traditional loans or long-term debt commitments
- Lack the trading history or credit profile required for other types of business finance
- Need to unlock working capital tied up in unpaid invoices
It’s best suited to businesses that issue consistent invoice volumes and are confident in their customers’ ability to pay. However, it may not be ideal if your invoices are low value, infrequent, or if your clients have a history of late payments or defaults.
Invoice finance alternatives
Invoice finance is one of several funding options available to Australian businesses. If it isn't the right fit or you don't meet the eligibility requirements, you might also consider:
Line of credit
A line of credit is one of the closest alternatives to invoice finance, offering flexible access to funds up to a pre-approved limit that you can draw, repay and redraw as needed. Unlike invoice finance, however, it isn't tied to your outstanding invoices, making it a good option if your cash flow gaps aren't always linked to delayed customer payments. Interest is charged only on the amount used.
Business overdraft
A business overdraft works similarly to a line of credit, allowing you to withdraw beyond your account balance up to an approved limit. It can be a simpler option than invoice finance if your funding needs are occasional rather than ongoing, and you don't want to manage an invoice finance facility on a regular basis.
Business loans
If you need funding for a specific purpose, such as expanding your premises or covering a large one-off expense, a business loan may be more appropriate than invoice finance. Loans provide a lump sum repaid in fixed instalments over an agreed term and can be secured or unsecured, with secured loans typically offering lower rates and higher borrowing limits.
Asset finance
If your primary purpose is to purchase equipment, vehicles or machinery rather than cover day-to-day running costs, asset finance might be the solution. Options include chattel mortgage, finance lease and operating lease, depending on whether you want to own the asset outright or use it for a set period.
