Cash flow
Invoice finance vs debtor finance vs factoring: what is the difference?
Invoice finance, debtor finance and factoring all unlock cash tied up in unpaid invoices. The differences are in control, confidentiality and scope.
- Reviewed by
- Kama Atcheson, Business lending specialist
- Published
- Last reviewed
- Reading time
- 6 min read
Key takeaways
- All three advance cash against invoices issued to business or government customers.
- Factoring usually means the provider manages collections and your customers pay it directly.
- Invoice discounting is usually confidential and you keep control of collections.
- Debtor finance generally refers to a facility over your whole receivables ledger.
If your customers are other businesses, some of your working capital is always tied up in unpaid invoices. Receivables finance turns those invoices into cash now, rather than in 30, 60 or 90 days. The terms get used loosely, so here is what each usually means in Australia.
Invoice finance (the umbrella term)
Invoice finance is the broad category: any facility where a provider advances funds against invoices you have issued. Within it sit invoice discounting, factoring and whole-of-ledger debtor finance, plus selective or single-invoice options.
Invoice discounting
- You keep control of your sales ledger and collect from customers yourself.
- It is usually confidential, so customers do not know you use finance.
- It tends to suit established businesses with good credit control processes.
Factoring
- The provider usually manages your ledger and collects directly from your customers.
- It is typically disclosed, so customers are told to pay the provider.
- It can suit smaller businesses that want to outsource collections.
- Facilities can be recourse, where you carry the risk of bad debts, or non-recourse, where the provider takes some of that risk for a higher fee.
Debtor finance
- Usually a facility secured over your whole receivables ledger.
- The available funds rise as you raise invoices and fall as customers pay.
- Often used as an alternative or top-up to a bank overdraft.
At a glance
| Feature | Invoice discounting | Factoring | Debtor finance |
|---|---|---|---|
| Who collects | You | Provider | Usually you |
| Customers notified | Usually not | Usually yes | Depends on facility |
| Scope | Selected or all invoices | Selected or all invoices | Whole ledger |
| Suits | Established, strong credit control | Smaller, outsource collections | Growing B2B with steady invoicing |
What it costs
Pricing structures vary. You may see a discount fee or service fee per invoice, interest on funds drawn, and sometimes minimum usage or facility fees. Compare the total cost across a typical month rather than a single headline figure.
What providers look at
Providers care most about who owes you money. They assess the credit quality and spread of your debtors, how old your invoices are, how often invoices are disputed or credited, and whether you rely heavily on one customer.
Next steps
Compare invoice finance, debtor finance and factoring providers, or tell us about your receivables and we will find the right structure.
Questions about this topic
How much of an invoice can I get upfront?
Providers advance a percentage of eligible invoices and pay the balance, less fees, when your customer pays. The percentage varies by provider and by your debtors.
Do I need property security for invoice finance?
Generally no. The invoices themselves are the main security, although providers may also take a general security interest and director guarantees.
Can I finance just one invoice?
Yes, some providers offer selective or single-invoice finance. Others require a facility over the whole ledger.
