Late payments and extended payment terms can put a severe strain on small and medium-sized businesses across Australia, especially when bills, wages, and suppliers don’t wait.
Invoice finance is a practical way for business owners to alleviate cash flow pressure by utilising outstanding invoices to secure funds more quickly. Instead of waiting weeks for payment, invoice finance allows you to access a portion of the money soon, helping to cover costs such as payroll, stock, or new opportunities.
Whether you run a growing trade business in Queensland or a busy wholesale operation in Brisbane, understanding how invoice finance works could give you a helpful edge.
Let’s break down exactly what invoice finance is, how it works, and whether it’s a good fit for your business.
Talk to Queensland brokers who understand your cash flow needs. Let Zest Mortgage Solutions help match you with the right invoice finance solution for your business model. Call (07) 3461 6499 or visit zestmortgagesolutions.com.au.
What Is Invoice Finance?
Invoice finance, also known as debtor finance or accounts receivable finance, is a type of business funding that enables companies to utilise their unpaid customer invoices to enhance their cash flow. Rather than waiting for clients to settle their accounts, businesses can use these outstanding invoices as a financial asset.
This approach is widespread among companies that sell to other businesses on credit terms, where payment periods can stretch out to 30, 60, or even 90 days. By using invoice finance, a company converts its accounts receivable (money it has already earned) into readily accessible funds.
It’s not about taking on new debt, but rather making better use of what’s already owed.
While commonly used by small and medium businesses, invoice finance can be suitable for any organisation that deals with regular billing cycles and delayed payments. It sits under a broader category of debtor finance and is often used to ease pressure without relying on traditional loans or overdrafts.
Now that we’ve defined it, let’s look at how invoice finance actually works in practice.
How Invoice Finance Works
Once you’ve issued a tax invoice to a customer, you don’t always have to wait until the end of the payment terms to see that money hit your business bank account.
With invoice finance, you can submit that invoice to a finance provider, who’ll give you a large portion of the value upfront, typically between 80% to 90%. The remaining balance, minus any fees or interest charges, is paid to you after your customer settles the invoice.
Here’s a simple example:
Let’s say a Queensland-based supplier issues a $20,000 commercial invoice to a retail client, with payment due in 60 days. Instead of waiting two months, the business uses invoice financing to improve its cash flow.
Here’s how it might look:
- Invoice amount: $20,000
- Advance rate (85%): $17,000 received upfront
- Remaining 15% ($3,000) held until payment
- Finance provider fee (say 2% of invoice): $400
- Final payment after customer pays: $2,600
Therefore, in total, the business receives $19,600 from a $20,000 invoice, without the 60-day wait period.
Queensland brokers who know the invoice finance landscape inside out. Zest Mortgage Solutions helps you compare trusted providers and find the best fit for your cash flow. Call us at (07) 3461 6499 today.
Types of Invoice Finance
Not all invoice finance works the same way. Depending on how much control you want and how involved your customers are, there are two main options to consider:
1. Invoice Factoring
With factoring, the finance provider manages your accounts receivable and collects payments directly from your customers. It’s often suitable for businesses that prefer to hand over credit control and focus on day-to-day operations.
2. Invoice Discounting
Discounting is usually confidential and leaves you in charge of collecting payments from customers. It’s better suited to businesses with strong record-keeping and established customer relationships.
Unsure whether invoice finance or invoice discounting suits your business? Let a Zest Mortgage Solutions broker break it down for you, simply and clearly. Reach out on (07) 3461 6499 or visit zestmortgagesolutions.com.au to learn more.
Pros and Cons of Invoice Finance
For businesses dealing with late payments or lengthy payment terms, invoice finance can be a valuable tool for managing cash flow. Like any financial product, however, it comes with both advantages and disadvantages.
Here’s a simple breakdown of the pros and cons to help you weigh it up:
✅ Pros of Invoice Finance
- Quick access to funds: You can unlock a portion of the cash tied up in unpaid invoices without waiting 30, 60, or 90 days.
- Improved cash flow: Helps manage day-to-day expenses like payroll, operational costs, or stock purchases.
- Supports growth: Ideal for taking on bigger jobs or expanding without needing a traditional working capital loan.
- Reduces impact of late payments: Helps smooth out income gaps caused by slow-paying customers.
- Flexible use: Funds can be used for any purpose. There are no restrictions, unlike some business loans.
❌ Cons of Invoice Finance
- Fees and interest charges: These can add up and reduce your total returns on each invoice.
- Customer involvement (in factoring): In some cases, your clients may be aware that you’re using a third party, which can impact customer relationships.
- Not ideal for all businesses: If you have low invoice volumes or irregular billing cycles, it may not be cost-effective.
- Ongoing costs: Depending on the provider, there could be processing fees, credit check fees, or minimum charges.
- Relies on customer payment behaviour: If your clients don’t pay, it may delay your final balance or even lead to bad debt issues.
Who Should Consider Invoice Finance
Invoice finance isn’t for everyone, but for the right business, it can be a game-changer. If your cash is tied up in unpaid invoices and you’re constantly juggling bills, this could be worth a closer look.
Here’s who should consider invoice financing:
- Small businesses that issue regular invoices to other businesses often deal with slow-paying customers.
- Companies looking to improve cash flow management without relying on traditional business loans.
- Businesses in industries with long payment cycles, such as construction, labour hire, wholesale, and manufacturing.
- Firms that want help managing their sales ledger and collections, particularly when working with a factoring company.
- Businesses in a growth phase that need fast access to working capital to take on bigger projects or larger clients.
If your business fits any of the above, invoice finance could provide the flexibility and breathing room you need to keep things running smoothly.
Queensland businesses: Get local support from brokers who know what matters. Zest Mortgage Solutions can help you access invoice finance options that suit your clients, your payment terms, and your cash flow cycle. Talk to us today at (07) 3461 6499.
Frequently Asked Questions (FAQs)
What is invoice finance and how does it work?
Invoice finance allows businesses to access a portion of their unpaid invoices before customers pay. A finance provider gives you an advance based on the value of your accounts receivable, and the rest, minus fees, is paid when the customer settles the invoice.
What is the difference between invoice factoring and invoice discounting?
With invoice factoring, the factoring company manages your sales ledger and collects payments directly from your customers. Invoice discounting, on the other hand, maintains confidentiality and allows you to retain control over collections.
Is invoice finance a loan?
No, invoice finance isn’t a typical business loan. It’s a form of cash flow financing where your outstanding invoices are used as a financial asset to advance funds, without creating long-term debt.
Who can use invoice finance?
Small businesses, medium-sized enterprises, and companies in industries with long payment terms, such as construction, manufacturing, wholesale, or labour hire, can benefit from invoice finance, especially if they offer credit sales.
How much does invoice finance cost?
Costs vary depending on the provider and terms. Common fees include an application fee, processing fees, and a service charge or interest. Total fees usually range between 1% to 5% of the invoice value.
Will my customers know I’m using invoice finance?
It depends on the type you choose. In invoice factoring, your customers are aware because the provider handles payments. In invoice discounting, the arrangement is usually kept confidential.
Does using invoice finance affect my credit rating?
Typically, no. Since it’s not a traditional loan, it doesn’t appear as debt on your balance sheet. However, poor cash flow management or issues with collections could impact your financial stability in other ways.
How can brokers assist with invoice finance?
Brokers help match businesses with the most suitable invoice finance providers by comparing rates, terms, and features. They simplify the process, explain fee structures, and help you choose between factoring and discounting based on your needs.
Brokers like Zest Mortgage Solutions offer tailored guidance to support better cash flow management for Queensland businesses.
Final Thoughts
Invoice finance provides a flexible, short-term solution for businesses experiencing late payments and strained cash flow. Whether you choose invoice factoring or discounting, it’s a practical way to convert your accounts receivable into usable funds, without the long wait.
Just make sure to weigh up the costs, understand your customer base, and choose a reliable finance provider that fits your needs.
If you’re unsure where to start, speaking with a broker can make all the difference. For friendly, expert guidance, contact Zest Mortgage Solutions at (07) 3461 6499 or visit zestmortgagesolutions.com.au to book a consultation.
