Receivables funding
Invoice finance or debtor finance?
Key takeaways
- Invoice finance (spot factoring) funds a single invoice. Debtor finance is an ongoing facility over your whole receivables ledger.
- Typically 80 to 90% of the invoice value upfront. The balance, minus fees, once your customer pays.
- Debtor finance usually costs less per invoice at scale, but more of your ledger runs through the financier.
- Disclosed or undisclosed decides whether your customers know a financier is involved.
Invoice Finance vs. Debtor Finance: The Core Difference
Invoice finance - also called spot factoring - funds a single invoice, one transaction at a time. You choose which invoice to fund, the financier advances a percentage of its face value, and the facility closes out the moment that invoice is paid. There's no ongoing commitment: fund one invoice this month and none next month if that's what suits your cash flow.
Debtor finance - sometimes called invoice factoring or a receivables facility when set up on a whole-ledger basis - is a revolving line secured against your entire debtor book, or an agreed segment of it. Every eligible invoice you raise is automatically drawn against the facility, funds are advanced continuously as new invoices are issued, and the limit grows and shrinks with your ledger. It behaves more like a business line of credit than a one-off transaction, with a blended monthly rate applied across the whole book rather than a fee calculated per invoice.
Side-by-Side: Scope, Rate and Control
| Dimension | Invoice Finance | Debtor Finance |
|---|---|---|
| Scope | One invoice at a time, by choice | Whole ledger, or an agreed segment, continuously |
| Facility Type | Ad hoc, transaction-by-transaction | Revolving facility with a set limit |
| Advance Rate | 80 to 90% of invoice face value | 80 to 90% of eligible ledger value |
| Fee Basis | 1 to 3.5% per 30 days, per invoice | Lower blended monthly rate across the book |
| Customer Awareness | Usually confidential | Available disclosed or undisclosed |
| Best For | One-off cash gaps, seasonal spikes, testing the product | Ongoing working capital, businesses on 30 to 90 day terms |
Indicative market ranges, not quotes. Your Compare Report shows the options you qualify for across our panel.
Worked Example: The Same $50,000 Invoice, Two Structures
A $50,000 Invoice, Paid in 35 Days
Same invoice, same customer, same 35-day payment term - funded two different ways. Both advance 85% ($42,500) on day one. The difference shows up in the fee, charged on the full invoice until the customer pays.
SPOT INVOICE FINANCE
2.4% per 30 days
Advance (85%): $42,500 upfront
Fee: 2.4% × ~1.17 periods = $1,400
Net proceeds: $48,600
Held on account: $0 after payout
DEBTOR FINANCE FACILITY
1.3% per 30 days (blended)
Advance (85%): $42,500 upfront
Fee: 1.3% × ~1.17 periods = $758
Net proceeds: $49,242
Plus: monthly facility fee applies across whole ledger
On this single invoice, the debtor finance facility nets $642 more - but that comparison only holds once your whole ledger is running through it, not one invoice in isolation. A facility fee applies whether or not you draw against every invoice, which is the trade-off for the lower per-invoice rate.
Not sure which structure fits your ledger?
See My OptionsDisclosed vs. Undisclosed Facilities
This is the decision most business owners weigh hardest, and it's independent of whether you choose invoice finance or debtor finance - both structures are available either way.
- Disclosed
- Your customer is notified a financier is involved and pays funds directly into the financier's trust account. Typically cheaper and simpler to set up.
- Undisclosed
- Your customer keeps paying you as normal; you then remit to the financier. Preserves the appearance of self-funding but usually carries a rate premium and tighter reporting requirements.
- Why choose disclosed
- Lower cost, simpler collections, and increasingly normal - many customers, especially larger corporates, are used to paying into a financier's account and don't read it as a signal of financial stress.
- Why choose undisclosed
- Businesses with sensitive customer relationships, or in sectors where financing arrangements could affect negotiating position, often pay the premium to keep the arrangement private.
Eligibility & Documents
Both structures are assessed primarily on the quality of your debtors, ahead of your own business - a meaningful difference from a term loan, where the lender is mostly assessing you. Debtor concentration matters more here than on almost any other product: a ledger with one customer accounting for 60% of revenue will be funded more cautiously than one spread across a dozen reliable payers, even if total revenue is identical.
- Debtor Quality
- Financiers check the customers you invoice as closely as they check you - a slow-paying or high-risk debtor can be excluded from the facility even if the rest of your ledger qualifies.
- Debtor Concentration
- Most financiers cap any single customer at 20 to 30% of the funded ledger; above that, expect a lower advance rate or exclusion on the excess.
- Invoice Terms
- 30 to 90 day trade terms are the sweet spot; invoices due in under 14 days are rarely worth funding once fees are applied.
- Time Trading
- From 3 months with some non-bank lenders; debtor finance facilities from bank-affiliated financiers often want 12+ months.
| Document | Invoice Finance (Spot) | Debtor Finance (Facility) |
|---|---|---|
| The invoice itself | Required, plus proof of delivery | Required per drawdown |
| Aged debtor/creditor ledger | Not always required | Required - assessed for concentration |
| Bank statements | 1 to 3 months | 3 to 6 months |
| Customer credit checks | On the funded debtor only | On all material debtors in the ledger |
| Identification | Director ID + licence | Director ID + licence |
Evaluating Receivables Funding on Security, Term, Amount and Rate
- Security
- The invoice or ledger itself is the security - no property or hard assets required, though a director's guarantee (the director personally backs the debt) is standard.
- Term
- Invoice finance closes out on payment, typically 14 to 90 days; debtor finance facilities typically run on a 12 to 24 month contract.
- Amount
- Sized against your eligible ledger - 80 to 90% of invoice or debtor-book value, net of concentration caps.
- Rate
- 1 to 3.5% per 30 days on spot invoices; a lower blended monthly rate once a whole-ledger facility is in place.
Choosing Between the Two
CHOOSE INVOICE FINANCE WHEN
- You only have one or two specific invoices needing early cash
- No ongoing commitment or facility fee - pay only for what you fund
- Simpler to set up the first time, useful for testing the product
- You want to keep the rest of your ledger untouched
CHOOSE DEBTOR FINANCE WHEN
- You fund invoices most months, not occasionally
- Lower blended rate outweighs the facility fee at your volume
- You need funds to draw automatically as new invoices are raised
- Facility fee applies whether you draw fully or not
Invoice Finance vs. Debtor Finance vs. Term Loan vs. Trade Finance
| Invoice Finance | Debtor Finance | Term Loan | Trade Finance | |
|---|---|---|---|---|
| How It Works | Advance against one unpaid invoice | Revolving facility over the whole ledger | Lump sum, fixed schedule | Funds the gap between paying suppliers and getting paid |
| Best For | One-off receivables gap | Ongoing working capital on trade terms | One-off funding need, unrelated to receivables | Import/export timing gaps |
| Typical Rates | 1% to 3.5% per 30 days | Lower blended monthly rate | 9.9% to 48% p.a. | Facility fee plus interest on drawn balance |
| Repayment Structure | Repaid when the invoice is collected | Continuous draw and repay against the ledger | Fixed instalments over term | Repaid on receipt of buyer funds |
Frequently Asked Questions
Will my customers know I'm using invoice finance?
Only if the facility is disclosed. Invoice finance is typically undisclosed: your customers keep paying you as usual. With a disclosed facility, they’d see payment instructions directing funds to the financier’s trust account. Undisclosed facilities exist for businesses that want to keep the arrangement private, usually at a rate premium.
What happens if my customer pays late?
Under a disclosed facility, the financier typically manages follow-up directly. Fees usually accrue for the extra days the invoice remains unpaid, so a late payment increases the cost slightly rather than defaulting the facility - provided the customer eventually pays.
Can I finance just one invoice, or do I have to finance my whole ledger?
Both options exist. Spot invoice finance lets you fund a single invoice with no ongoing commitment. Debtor finance requires an agreed portion of your ledger - often your largest or most reliable customers - to run through the facility continuously.
What if my customer doesn't pay at all?
This depends on whether the facility is "with recourse" or "without recourse." Recourse facilities, which are more common and cheaper, mean you're liable to repay the advance if the customer defaults. Non-recourse facilities shift that credit risk to the financier at a higher cost.
Does invoice finance affect my relationship with customers?
Rarely, in practice. Disclosed facilities are common enough in Australian B2B trade that most corporate customers don't treat a change of payment instructions as a red flag. Undisclosed facilities avoid the question entirely by keeping payment flows unchanged.
Can new businesses use debtor finance?
Yes, though most financiers want at least 6 months of trading history and an established set of customers to assess debtor quality against. Newer businesses are more commonly directed toward spot invoice finance first, then offered a facility once a payment pattern is established.
How is this different to a business loan?
A business loan is assessed against your business's overall financial position and repaid on a fixed schedule regardless of when your customers pay you. Invoice and debtor finance are assessed against your debtors' payment reliability and repay themselves automatically as invoices are collected - the funding scales with your receivables rather than sitting as a fixed debt on your balance sheet.
Can I switch from spot invoice finance to a full debtor finance facility later?
Yes - this is a common progression. Many businesses start with occasional spot advances to test the product, then move to an ongoing facility once they recognise a recurring pattern of receivables timing gaps.
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