Invoice finance: turn unpaid invoices into cash you can use now

Invoice finance turns the money your customers owe you into money you can spend today. You do the work, issue the invoice, and instead of waiting 30, 60 or 90 days, a lender advances most of the invoice’s value straight away and settles the rest, less its fees, when your customer pays. It’s built for businesses that sell to other businesses or to government on credit terms, and it grows with your sales rather than being a fixed lump sum.

The catch is that it’s not the right tool for everyone. This page explains how it works, the main versions, what lenders check, how pricing is put together, and when a different loan will serve you better.

How does invoice finance work, step by step?

The mechanics are simpler than the jargon suggests:

1. You deliver and invoice as normal. The invoice must be for goods or services already provided, to a business or government customer.
2. You submit the invoice to the lender. Usually through an online portal or an accounting software link.
3. The lender verifies it. It may confirm the invoice with your customer, check it against your records and make sure it isn’t disputed.
4. You receive an advance. A large share of the invoice value lands in your account, not the full amount.
5. Your customer pays. Either into a nominated account (confidential versions) or directly to the lender (factoring).
6. The balance comes back to you. The lender deducts its fees and releases what’s left.

The important shift is that the lender’s risk sits largely with your customer. A small business with thin trading history can still get a useful facility if it invoices large, reliable payers.

Factoring, discounting or single invoice: what’s the difference?

“Invoice finance” is an umbrella. These are the three versions you’ll hear about most:

Version	Who chases the customer?	Do customers know?	Best for
Invoice discounting	You	Usually not	Established businesses with solid credit control
Factoring	The lender	Yes	Smaller businesses that want collections handled
Selective / single invoice	Usually you	Depends on provider	One-off large invoices or occasional use

If you’re looking for an ongoing facility over every invoice you raise, with a limit that rises and falls with your ledger, that’s usually called debtor finance, and we explain it separately on the debtor finance page.

Who is invoice finance best suited to?

It works best where there’s a predictable gap between doing the work and being paid. Typical users include:

• Manufacturers and wholesalers supplying retailers, distributors or major chains. See how lenders look at manufacturing businesses.
• Labour hire, cleaning, security and facilities firms that pay staff weekly but bill monthly.
• Transport and logistics operators invoicing on long terms to large customers.
• Professional services and IT businesses on government or corporate panels.

A useful check is to look up your biggest customers. Large businesses with annual consolidated revenue of $100 million or more must report how quickly they pay small business suppliers, according to the Payment Times Reporting Regulator’s July 2024 information sheet. If your key customer routinely pays slower than its stated terms, invoice finance can stop that delay landing on your wages bill.

It’s a poor fit for businesses paid at the counter, online retailers selling to consumers, and builders whose progress claims are frequently varied or disputed.

What do lenders look at before approving a facility?

Because the invoices are the security, the questions are different from a standard business loan:

• Who your customers are. Their size, payment history and whether they’re likely to dispute invoices.
• Concentration. If one customer makes up most of your sales, the lender may cap how much it will advance against that customer.
• Invoice quality. Clear descriptions, correct ABNs, matching purchase orders and proof of delivery all help.
• Disputes and credit notes. A history of frequent credits tells a lender that invoices may not be paid in full.
• Existing security. Lenders check the PPSR for prior registrations. Registered interests are visible to lenders, as the PPSR’s guidance for wholesalers points out, so if your bank already holds a general security over the business, the two lenders may need to agree on who ranks first over receivables.
• Your tax position. Overdue BAS lodgements or ATO debt aren’t automatic deal-breakers, but they must be disclosed.

If your customers are solid and your invoicing is tidy, it’s worth checking what you could access before the next big invoice goes out.

What does invoice finance cost?

There’s no single rate card because pricing depends on your customers, your volumes and how much work the lender does. The cost is usually built from some combination of:

• A discount or funding fee charged on the money advanced, for as long as the invoice is outstanding. The slower your customer pays, the more this adds up.
• A service or administration fee, often a flat monthly amount or a charge per invoice. Factoring costs more here because the lender runs your collections.
• Establishment costs, covering set-up, customer checks and PPSR registration.
• Exit or minimum-use terms on some whole-ledger facilities.

One cash-flow detail many owners miss: if you account for GST on a non-cash (accruals) basis, the ATO’s guide to choosing a GST accounting method confirms you report GST on a sale when you issue the invoice or receive payment, whichever comes first. That means you can owe the GST before your customer has paid you, which is one more reason the timing gap bites.

Compare the total cost over a realistic payment period, not just the headline fee, and weigh it against what the cash lets you do: take a bigger order, pay a supplier early or keep staff on.

Illustrative example: a commercial cleaning company

Illustrative example: a commercial cleaning business wins a contract with a large property manager worth about $60k a month. Staff are paid weekly, but the client pays on 60-day terms. Within two months the business is carrying around $120k in unpaid invoices and its overdraft is maxed out.

With invoice discounting, each monthly invoice is funded soon after it’s issued. The cleaning company keeps sending its own reminders, the property manager pays into the nominated account, and the balance is returned less fees. Wages go out on time, and the business can tender for a second contract without waiting for the first to pay.

When is a different loan the better tool?

Invoice finance is excellent for a recurring gap between invoicing and payment. It’s less suited to:

• A one-off purchase like a vehicle or machine. Equipment finance is usually cleaner.
• Smoothing small, irregular dips. A business line of credit or cash-flow loan sized on turnover may be simpler. These are typically $5k to $500k for trading businesses.
• Funding an order before you’ve delivered it. That’s the job of purchase order finance.
• Larger sums where you own property. Property-secured business loans from $20k to $5m can sometimes replace a receivables facility entirely, with one repayment and no invoice-by-invoice admin.

The secured or unsecured tool gives a quick steer on which direction suits your situation.

Ready to stop waiting on your debtors?

If customers are sitting on your money, there’s usually a better way to bridge the gap than stretching suppliers or skipping your own pay. Tell us what you invoice, who your main customers are and roughly how long they take to pay. The enquiry takes about a minute, and there’s no credit check just for asking. We don’t hand your details around to a long list of lenders, so you won’t be fielding calls all week. A real person reviews your situation and rings you to talk it through. The more accurate your answers, the more likely the first option we suggest is the one that fits.

Find out what your invoices could unlock →