Invoice Finance - turn unpaid invoices into working capital
Invoice finance allows you to access money tied up in unpaid customer invoices instead of waiting 30, 45 or 60 days for your customers to pay.
If you're paying wages, suppliers, tax and other business costs well before you receive payment for the work you've completed, the problem may not be profitability — it may simply be cashflow.
Invoice finance can bring forward a percentage of the money you're already owed, giving you working capital to meet your commitments, take on new work and keep your business moving.
We work with a range of invoice finance lenders offering different types of facilities. We can help you work out which type of invoice finance is appropriate for your business and find a lender whose criteria and facility structure suit you.
What is invoice finance?
Invoice finance is business funding based on the value of invoices you've issued to your customers.
Rather than waiting until the invoice due date — or longer if your customer pays late — an invoice finance lender advances you a percentage of the invoice value soon after it is issued.
Invoice finance is also commonly referred to as debtor finance or factoring, although there are different types of facilities and they don't all work in exactly the same way.
Unlike a conventional business loan with a fixed borrowing amount, the amount of funding available through invoice finance can increase as your sales and accounts receivable ledger grow.
how does invoice finance work?
While the exact process varies between lenders and facility types, typically:
You provide goods or services to your customer and issue your invoice as normal.
You submit eligible invoices to your invoice finance provider.
Depending on your facility, the lender may verify some or all of the invoices with your customers.
The lender advances an agreed percentage of the value of eligible invoices — potentially up to 95%, depending on the facility.
Your customer pays the invoice into the account nominated under your invoice finance arrangement.
The remaining available balance is released to you, less the lender's fees and any other amounts due.
You continue submitting new invoices as they're raised, providing an ongoing source of working capital rather than applying for a new loan every time you need cash.
WHAT TYPES OF INVOICE FINANCE ARE AVAILABLE?
Invoice finance isn’t one product. Different facilities suit different businesses, customers and cashflow requirements.
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With a full-service facility, you fund against your accounts receivable ledger and your customers know that an invoice finance provider is involved.
Your finance provider generally manages collections and sends customer statements as part of the service, effectively providing an accounts receivable function as well as finance.
For businesses that would rather spend their time running the business than chasing outstanding invoices, this can be an additional benefit.
Read more about disclosed invoice finance.
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You don't necessarily have to fund your entire debtor ledger.
With partial-ledger finance, you select one or more customers to include in the facility. Invoices for those customers are submitted to your funder while you continue managing your other customers separately.
These facilities are generally disclosed and may include collections and statements for the customers included in the facility.
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If you only need additional cash occasionally, single-invoice finance may allow you to select individual invoices for funding rather than committing your whole debtor ledger.
This can suit businesses with occasional large invoices or short-term working capital requirements.
Single-invoice finance is generally disclosed because the customer needs to pay the financed invoice to the funder.
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Some businesses may qualify for a confidential facility where customers aren't told that an invoice finance provider is involved.
You continue managing your own accounts receivable, including statements and collection calls, while customer payments are directed to the account required under the facility.
Eligibility requirements for confidential facilities are generally higher because the lender relies more heavily on your own credit-control processes and financial management.
is my business eligible for invoice finance?
Invoice finance is primarily designed for businesses that sell goods or services to other businesses on credit terms.
As a general guide, it may be suitable if:
Your customers are other New Zealand businesses
You issue invoices after supplying goods or services
Your customers pay on standard commercial credit terms
You have an established accounts receivable ledger
Your monthly turnover is around $10,000 or more
Eligibility varies between lenders. They will also consider factors such as the quality and spread of your customers, the age of outstanding invoices, your industry and how your invoicing and credit-control processes work.
One important difference from a traditional business loan is that the quality of your customers matters. Because the lender is advancing money against invoices those customers are expected to pay, who owes you money can be just as important as your own business's financial position.
how much can I access through invoice finance?
Depending on the lender and facility, you may be able to access up to 95% of the value of eligible invoices.
The actual percentage available can depend on factors such as your facility type, customer base, debtor concentration and the quality of your accounts receivable ledger.
Not every invoice will necessarily be eligible for funding. For example, lenders may treat significantly overdue invoices, disputed invoices or some types of customers differently.
As your business raises more eligible invoices, the amount of funding available can grow with your sales.
how much does invoice finance cost?
Invoice finance costs vary considerably depending on the lender, facility structure, turnover, number and quality of debtors and the services included.
Depending on the facility, costs may include a service or administration fee and a funding charge on the money you actually use. Full-service facilities that include debtor management may be priced differently from facilities where you retain responsibility for collections.
For that reason, the cheapest headline rate doesn't necessarily mean the cheapest — or best — facility overall.
When comparing invoice finance lenders, it's important to understand the total cost, minimum fees, facility limits, notice periods and any other charges that apply.
Will my customers know I’m using invoice finance?
It depends on the type of facility.
With disclosed invoice finance, your customers know an invoice finance provider is involved and generally pay the lender directly. The lender may also handle statements and collection calls.
With a confidential facility, customers may simply be instructed to pay into a different bank account and you continue managing the customer relationship and collections yourself.
If keeping the facility confidential is important to you, tell us at the outset so we can identify lenders offering that type of facility and determine whether your business meets their criteria.
Five ways invoice finance can help your business
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Instead of waiting for customer payment terms to expire, eligible invoices can often be funded shortly after they're submitted to your finance provider.
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Winning new work can create a cashflow problem before it creates a profit. You may need to buy stock or materials and pay additional staff long before your new customer pays you.
Invoice finance can provide working capital that grows alongside your sales, helping you take on work that your existing cash reserves might otherwise prevent you from accepting.
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Your expenses don't necessarily wait for your customers to pay you. Bringing forward cash from outstanding invoices can help bridge the gap between paying the costs of delivering the work and receiving payment for it.
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Larger customers may expect 30-day, end-of-month or even longer payment terms.
Invoice finance can make it easier to offer commercially competitive credit terms without having to fund the entire waiting period yourself.
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With a full-service disclosed facility, your invoice finance provider can manage customer statements and collections on your behalf.
For businesses without a dedicated accounts receivable function, this can free up valuable time as well as improving cashflow.
Invoice finance or a business loan?
A business loan provides an agreed amount of finance that you repay over a set period. Invoice finance provides an ongoing facility linked to the value of your eligible accounts receivable.
Invoice finance may be particularly useful when the amount of working capital you need rises as your sales grow. Instead of repeatedly applying for larger loans, the available facility can grow alongside the invoices you're issuing.
A business loan may be more appropriate when you need a fixed amount for a particular purpose and don't have a suitable business-to-business debtor ledger.
You don't necessarily need to know which one you need before talking to us. We can look at your cashflow requirement and explain the options available.
Why use a broker to find an invoice finance lender?
Invoice finance facilities can look similar at first glance, but the details can be very different.
Lenders have different eligibility criteria, advance rates, fees, minimum periods, debtor requirements and approaches to confidential and disclosed facilities. Some will suit particular industries or debtor structures better than others.
We can look at how your business operates, your accounts receivable ledger and what you're trying to achieve before identifying suitable invoice finance lenders.
We can then help you understand the differences between the facilities rather than simply choosing one based on the headline rate.
For more insights, read our article about how invoice finance helps your business when credit terms required by your customers are longer than you’d normally like.
You could also check out our guide to decoding your invoice finance facility agreement so you can understand your documentation.
Frequently asked questions about invoice finance
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Factoring is a form of invoice finance, but the terms are often used interchangeably. Invoice finance is the broader term for funding based on outstanding customer invoices. Different facilities may include full-service factoring, partial-ledger finance, single-invoice finance and confidential invoice finance.
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Once your facility is established, eligible invoices can often be funded within 24 hours of being submitted and, in some cases, on the same day. Timing depends on your lender, facility and any invoice-verification requirements.
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Not necessarily. Some facilities fund your full accounts receivable ledger, while others allow you to select particular customers or even individual invoices. The options available depend on the lender and your business.
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It depends on the facility. With disclosed invoice finance, customers know the lender is involved. With a confidential facility, customers may not be aware that their invoices are being financed.
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The lender initially advances an agreed percentage of the eligible invoice. When your customer pays, the remaining available amount is released to you after the lender deducts applicable fees, charges and any other amounts due under the facility.
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Most invoice finance facilities are provided on a recourse basis, meaning your business remains responsible for an invoice if the customer doesn't pay. How an unpaid invoice is dealt with depends on the terms of your facility.
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This varies between lenders and products. Some facilities have minimum terms or notice periods, while more flexible options may be available for occasional or single-invoice funding. It's important to understand these requirements before choosing a facility.
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Invoice finance is primarily secured against your accounts receivable, but lenders may require additional security or guarantees depending on the facility and your circumstances. The requirements vary between lenders, so they should be considered as part of the overall facility rather than assuming all invoice finance is structured the same way.
We are a nation of small businesses, and for a lot of us we leave the big companies to do business with each other. While there’s great money to be made doing business with large corporates, the credit terms that they require you to offer (sometimes 90 days!) can make a deal less attractive. But what if you could sign that contract, knowing that the 90-day credit terms weren’t going to hurt you?