Invoice discounting advances cash against unpaid business invoices while the business keeps collecting from its customers. Invoice factoring usually transfers those invoices to a funder that handles collections. Both release working capital before payment arrives, but brokerage commission statements rarely fit a standard invoice-finance facility.
How Invoice Discounting Works
The funder takes a security interest over eligible invoices and advances an agreed share of their value. When customers pay into the agreed collection account, their payments repay the advance. The funder releases the remaining balance after deducting fees.
Confidential invoice discounting keeps credit control in-house. The business sends reminders and resolves payment queries, while customers usually remain unaware of the funding arrangement. This suits a business with reliable debtor records and staff who can manage collections.
In a hypothetical example, a business funds a $10,000 invoice at an 80% advance rate and receives $8,000. Once the customer pays $10,000, the remaining $2,000 becomes available less the facility's charges. The advance changes payment timing, while the fees reduce the amount the business ultimately keeps.
Factoring changes who collects the invoice, as the next section explains.
Invoice Factoring: The Disclosed Alternative
Invoice factoring involves selling eligible invoices to a factor, which advances part of their value and collects payment from customers. In a disclosed facility, customers know the factor is involved and receive instructions about where to pay. The balance follows after payment, less charges.
Recourse factoring leaves the business responsible when a customer fails to pay under the facility's recourse terms. The factor can require repayment of the advance or remove the unpaid invoice from funding. This can create a cash shortfall even though the invoice remains outstanding.
Non-recourse factoring transfers specified bad-debt risks to the factor, subject to the contract's cover limits and exclusions. A customer's insolvency may qualify for cover while a disputed delivery or credit note remains the business's responsibility. Read the covered events and claim conditions before treating non-recourse as protection against every unpaid invoice.
The amount of the ledger committed also differs between facilities.
- Spot factoring funds an individual invoice for an occasional cash need.
- Partial-ledger factoring funds selected customers or a defined group of invoices.
- Whole-turnover factoring commits the agreed eligible ledger on an ongoing basis, with minimum charges or turnover commitments set by the contract.
Selling an invoice does not remove the need to address security interests. The factor normally registers its interest in the accounts on the Personal Property Securities Register (PPSR), against the business granting that interest. Existing registrations can affect priority and require agreement with another secured lender.
The PPSR's invoice-finance case study explains how registration protects an invoice purchaser against competing claims. Registration records a security interest; it does not guarantee that the customer will pay.
Facility Sizes and the Current Market
ScotPac and Earlypay publish invoice-finance facilities for different ledger sizes. Their headline figures are product snapshots, and the approved amount depends on the invoices and the business.
ScotPac's debtor-finance page advertises advances up to 95% of approved invoice value. Its invoice-finance page lists funding up to $200 million.
Earlypay's invoice-finance page headlines facilities of $100,000 to $10 million and advances up to 85%. Its FAQs describe 80% advances and a $50,000 starting facility. Use the written proposal to establish which terms apply before quoting a facility to a client.
Aggregation groups such as LMG (Loan Market Group) have commercial lender panels. LMG includes the former Choice aggregation business. Before taking an enquiry further, establish which invoice-finance funders your group supports and what commercial accreditation or referral appointment each requires.
Who Qualifies
Invoice finance suits businesses with unpaid business-to-business invoices for goods already delivered or services already completed. The funder assesses whether those customers can pay and whether the invoices can be funded under its agreement.
Debtor quality and the business's trading history help the funder assess the ledger. A reliable payment pattern supports the application, especially for confidential discounting where the business continues collecting. Short trading history can still fit a disclosed facility with closer funder oversight.
The directors' credit history is a secondary check alongside the invoices and business position. Existing debts, disputes or excessive reliance on one customer can change the limit or the terms. If a client needs funds without eligible invoices, compare other business funding facilities.
The Application and Funding Sequence
The application moves from a proposal and debtor review to security documentation, then draws against approved invoices. A usable limit depends on completing each stage.
- Prepare a proposal explaining the cash need and whether the business wants to retain collections. Supply an invoice schedule with debtor balances, payment terms and overdue amounts.
- The funder reviews the ledger and supporting financial information. Company searches and PPSR searches identify the legal entity and existing security interests.
- Agree the advance rate, eligible invoices and collection arrangements. Complete the facility documents, resolve any security-priority requirements and arrange PPSR registration.
- Submit approved invoices for funding. Once the facility is active, draws can arrive within days. ScotPac advertises funding in as little as 24 hours, subject to approval.
Distinguish facility approval from the turnaround for later draws. An incomplete invoice schedule or unresolved existing security can delay the initial setup.
Pricing, Repayments and the Fine Print
Invoice-finance costs combine a discount margin on funds used with facility or administration fees. A factoring facility can also charge for collections. Compare the total cost over the client's expected payment cycle, including minimum charges and the treatment of GST on each fee.
Customer payments automatically reduce the funded balance through the agreed collection account. Slow payment keeps funds outstanding longer and can increase charges. A disputed invoice can also lose eligibility, reducing the amount available to draw.
Read the clauses governing minimum utilisation, audit rights and debtor-concentration limits. Check recourse triggers and disputed-invoice treatment, as well as contract length, notice periods and exit fees. These terms determine the cash required if a major customer pays late or the business leaves the facility.
Record the broker's role in a written commercial appointment, including the agreed service and remuneration. Refer tax-treatment questions to the client's accountant. The client needs a cost comparison based on its own ledger and expected collections before accepting a proposal.
Can a Brokerage Factor Its Commission?
Usually, no: lender and aggregator commission statements and recipient-created tax invoices (RCTIs) are not ordinary customer invoices available for assignment to a factor. Commission rights depend on the lender or aggregator agreement, including assignment restrictions and clawback or offset rights.
An RCTI records the recipient's calculation of the broker's commission. It does not by itself establish a debt that an invoice-finance provider will accept. The guide to mortgage broker RCTI statements explains what those records contain.
A brokerage needing cash before commission arrives can compare commission advances against the amount and timing of expected receipts. Give the prospective funder the commission agreement and statements so it can assess the payment rights, required consents and remaining clawback exposure.
