Invoice finance, also called debtor finance in Australia, gives you most of the value of an unpaid invoice straight away, rather than waiting the 30, 60 or 90 days your customer takes to pay. A provider advances an agreed percentage of the invoice now, then releases the rest, minus its fees, once your customer settles. It is built for business-to-business (B2B) firms that do the work, issue the invoice, then wait to be paid.
This guide walks through the mechanics in plain English, puts a worked example on the table, sets out what it costs, and shows where a business overdraft does the job better. 121 Brokers is a finance broker, not a lender: we compare facilities across a lender panel so you can see the real cost before you commit.
What invoice finance is (and why Australians call it debtor finance)
Invoice finance is funding advanced against money your customers already owe you. The unpaid invoices sitting on your sales ledger are the security, so you are borrowing against work you have already done rather than a house or a piece of equipment. In Australia the same product is often marketed as "debtor finance", "receivables finance" or, for single invoices, "invoice factoring". The label changes, the mechanic does not.
It matters because slow payment is a genuine drag on Australian small business. The Reserve Bank noted in its October 2025 Small Business bulletin that around one in five small and medium businesses found it hard to obtain finance in 2025, with cash-flow pressure a common theme. Invoice finance attacks that pressure at the source: it converts a receivable you cannot spend into cash you can.
How invoice finance works, step by step
Once a facility is set up over your ledger, the cycle repeats itself with each invoice:
- You invoice your customer as normal. Nothing changes about how you trade. The facility sits over your receivables, or over selected invoices if you choose a selective facility.
- You draw against the invoice. The provider advances an agreed percentage of the invoice value, commonly around 70 to 95 per cent, usually within a day or two once the facility is running.
- Your customer pays. They pay the full invoice on their normal terms, either to you or to the provider, depending on whether you use factoring or discounting.
- You receive the balance, minus fees. The provider releases the held-back portion of the invoice and deducts its charges. The cash arrived when the work finished, not two months later.
The available funding grows automatically with your sales. Bill more, and the ledger the facility draws on gets bigger, which is the feature a fixed loan cannot match.
A worked example: a $50,000 invoice on 60-day terms
Numbers make this concrete. This example is illustrative only, not a quote or an offer.
You issue a $50,000 invoice to a business customer on 60-day terms. At an 80 per cent advance rate, roughly $40,000 lands in your account within a day or two of drawing down. You use it to cover payroll and pay a supplier who will not wait. On day 60, your customer pays the $50,000. The provider takes its fees from the remaining $10,000 and releases the balance to you. Your cash cycle just shrank from 60 days to about 2, and you never touched an overdraft or a property loan to do it.
Swap in your own average invoice size and payment terms and the shape holds. The two variables that move the outcome are the advance rate (how much of the invoice you get upfront) and how long your customer actually takes to pay (which drives the fee).
What invoice finance costs
Invoice finance is usually priced as fees rather than a single interest rate, on top of the advance rate. As a broad market guide, not a quote, a whole-of-ledger facility often carries two charges:
- A discount fee: an interest-like charge on the funds you have actually drawn, for the time they are outstanding. Across the market this commonly sits in the region of 7 to 15 per cent per year on drawn funds.
- A service fee: a charge for running the facility, often quoted as roughly 1 to 3 per cent of turnover, and higher for factoring where the provider also manages collections.
Selective, single-invoice finance is often quoted differently again, as a flat fee of about 1 to 4 per cent of the invoice depending on how long it stays unpaid. These are market norms, not our prices, and the real cost depends on the strength and spread of your debtors, your invoice volumes, and how promptly your customers pay. We put actual facility quotes side by side so the total cost is visible before you decide.
Invoice finance vs a business overdraft
Both give you cash to smooth a gap, but they solve different problems. An overdraft is a general buffer attached to your trading account. Invoice finance is tied to specific receivables and scales with your sales. If the reason you are short is that customers pay slowly, invoice finance targets that directly. If the gap is general and unpredictable, an overdraft or a business line of credit may fit better.
Invoice finance vs business overdraft
Comparison of invoice finance and a business overdraft
| Feature | Invoice finance | Business overdraft |
|---|
| What it is secured against | Your unpaid B2B invoices | Usually the business, sometimes property |
|---|
| How the limit grows | Automatically, as your sales ledger grows | Fixed until you renegotiate |
|---|
| What you pay for | Fees on the invoices you fund | Interest on the balance drawn, plus line fees |
|---|
| Indicative cost (market guide, not a quote) | Discount fee around 7 to 15 per cent per year on drawn funds, plus a service fee | Often from around 14.5 per cent per year unsecured, lower when secured |
|---|
| Best for | B2B firms whose cash is stuck in slow-paying invoices | General, unpredictable working-capital gaps |
|---|
Plenty of businesses run both. The overdraft covers day-to-day wobble; the invoice facility does the heavy lifting when a big receivable is weeks away.
Is invoice finance a loan?
Not in the traditional sense. You are not taking a fixed lump sum and repaying it on a set schedule. You are drawing against invoices, and the funding is repaid when your customers pay them. The practical differences are that capacity scales with your sales rather than being capped upfront, and repayment is driven by your debtors settling rather than by a monthly instalment. For accounting and tax treatment, check with your accountant, because how a facility is characterised can matter.
Who invoice finance suits, and who it does not
It suits B2B businesses that invoice other businesses on credit terms: transport operators, wholesalers, labour-hire firms, manufacturers and construction subcontractors are common users. The honest counterpoint, the part a broker will tell you and a single product page rarely does, is who it does not suit. If you are mostly business-to-consumer or paid at the point of sale, there are no trade-credit invoices to finance, so a line of credit is usually the better tool. If your ledger is dominated by a single customer, concentration limits will cap what you can draw. And if you need to pay a supplier before you can invoice anyone, that is the buy-side gap that trade finance covers, not invoice finance.
How to set up invoice finance through a broker
Setting up a facility usually starts with your average monthly invoicing, your typical payment terms and the spread of your debtors. From there a broker can shortlist providers whose appetite fits your industry and debtor book, and compare the advance rate, the discount fee and the service fee on the same basis, so you are comparing total cost rather than a headline number. For a wider view of the cash-flow toolkit, see our invoice finance page, the business loans hub, and our guide on how to improve cash flow with invoice factoring. When you are ready, you can compare your options with a broker one-to-one.
General information only: not financial, legal or tax advice, and it does not take account of your objectives, financial situation or needs. 121 Brokers arranges business-purpose finance only and is a broker, not a lender. Any rates, fees, advance rates or timings mentioned are broad market guides, not quotes or offers. Approval, amounts, rates, fees and timing are determined by the lender or financier and are subject to its assessment criteria. Confirm any tax position with your accountant and at ato.gov.au.
