The short answer
Invoice finance lets a New Zealand business borrow against money its business customers owe. A financier advances a share of each unpaid invoice upfront, then releases the balance, less fees, when the customer pays. The two main types are factoring, where the financier collects from your customers, and invoice discounting, where you keep collecting yourself.
What is invoice finance?
Invoice finance, often called debtor finance, lets your business borrow against invoices your customers haven’t paid yet. Instead of waiting 30, 60 or 90 days for the money, a financier advances a portion of it now. When your customer pays, the financier takes back what it advanced plus its fees, and passes the rest to you.
It’s a way of turning your debtor ledger into working cash. For a business that’s growing quickly and selling to other businesses on terms, that can be the difference between taking on new work and turning it down.
How does invoice finance work in New Zealand?
The steps are similar across most providers:
- You do the work or deliver the goods and invoice your business customer as normal.
- You submit the invoice to the financier, often through a link with your accounting software.
- The financier advances part of the invoice value, usually within a short time.
- Your customer pays, either to you or directly to the financier, depending on the type of facility.
- The financier releases the balance, minus its fees and charges.
Behind the scenes, the financier will usually register a security interest over your receivables on the PPSR, because money owed to you counts as personal property. If another lender already holds a general security over your business, the two lenders may need to agree who ranks first. For more on how the PPSR works, see our asset finance page.
What types of invoice finance are there?
| Type | Who collects from customers | Do customers know? | Usually suits |
|---|---|---|---|
| Factoring | The financier | Yes | Smaller businesses wanting collections handled |
| Invoice discounting | You | Often confidential | Established businesses with solid credit control |
| Selective or spot finance | Varies | Varies | Occasional funding of individual large invoices |
| Whole-of-ledger facility | Varies | Varies | Businesses wanting ongoing funding across all invoices |
Factoring works well when chasing payments is eating your time, but your customers will deal with the financier, which some business owners don’t love. Invoice discounting keeps the relationship with your customers in your hands. Selective finance lets you fund one big invoice without committing your whole ledger.
Who is invoice finance good for?
It suits businesses that:
- Sell to other businesses on credit terms, not to consumers
- Have reliable, creditworthy customers, ideally a spread of them
- Are growing, so more of their cash is tied up in receivables each month
- Raise clear, undisputed invoices for completed work or delivered goods
Common examples include labour hire, wholesale and distribution, transport and logistics, manufacturing, and professional services firms waiting on clients.
It suits less well when your invoices are often disputed, rely on progress milestones, or are concentrated on one or two customers. Construction can be tricky too, because retentions and progress claims don’t fit the neat invoice model financiers prefer.
What does invoice finance cost?
We don’t quote rates or fees, and invoice finance pricing varies widely. What’s useful is knowing how the cost is built so you can compare offers properly:
- Discount or interest charge on the amount advanced, for the time it’s outstanding
- Service or administration fee, often a percentage of turnover funded
- Set-up fees and sometimes minimum monthly fees
- Extra charges for late-paying customers, audits or ending the facility
Pricing usually depends on the quality of your customers, how quickly they pay, your volumes, and whether you or the financier manage collections. Read the termination terms closely, and use the compare loan offers tool to see the true total cost against a simple loan.
Invoice finance vs a business loan: which is better?
Invoice finance isn’t the only way to bridge slow-paying customers. A lump-sum loan can do a similar job, and is often simpler.
| Invoice finance | Unsecured business loan | 2nd mortgage for business | |
|---|---|---|---|
| Based on | Your customers’ invoices | Your trading cash flow | Your property equity |
| Grows with sales | Yes | No, fixed amount | No, fixed amount |
| Customers involved | Sometimes | No | No |
| Set-up | Ledger review, can take time | Fast, bank statements | Fast, no financial records needed |
| Ongoing admin | Submit invoices regularly | Fixed repayments | Fixed repayments |
| Suits | Ongoing growth with many B2B customers | A defined gap or growth push | Larger amounts, weak financials or bad credit |
How can LoansOne help?
To be clear, LoansOne isn’t an invoice financier. What we do is arrange unsecured business loans and 1st or 2nd mortgages for business purposes, from $20,000 to $500,000. For many businesses with slow-paying customers, that’s a cleaner fix:
- Your customers never know. There’s no change to how you invoice or collect.
- No ledger audits or ongoing submissions. You get a lump sum and a clear repayment schedule.
- Speed. Funding is possible in as little as 24 hours in many cases.
- Works alongside invoice finance. Some businesses use a loan for a one-off cost and keep invoice finance for day-to-day receivables.
If your financials are behind or credit has been bumpy, a second mortgage for business purposes needs no cash flow or financial records, and bad credit is OK.
Example: a Wellington labour hire firm
Picture a Wellington labour hire business that pays its workers weekly but invoices construction and council clients on 45-day terms. Every new contract widens the gap. Invoice finance could grow with their sales, but the owners don’t want their clients dealing with a third party. A one-off unsecured loan covers the next three months of wages while two large contracts ramp up, and their own collections stay untouched. An illustrative scenario, not a real client.
Does invoice finance work for builders and trades?
It can be tricky. Construction rarely runs on simple invoices. Payments depend on progress claims, the head contractor’s approval, variations and retentions held back until the job is finished. Many invoice financiers prefer clean, undisputed invoices for completed work or delivered goods, so construction receivables are often funded only in part, or not at all.
That’s why many building and trade businesses look at other ways to bridge the gap between paying for materials and wages and getting a progress payment approved. An unsecured loan covers a defined gap without anyone reviewing your claims. A 2nd mortgage for business purposes can fund a larger gap, with no cash flow or financial records needed. Our business loans for builders page looks at progress payments and retentions in more detail.
Pros and cons of invoice finance
Pros
- Funding grows as your sales grow, without a new application each time
- Based mainly on your customers’ credit strength, not only yours
- Can free up cash tied up in large, slow-paying accounts
- Factoring can take collections work off your plate
Cons
- Usually only works for business-to-business sales
- Ongoing admin: submitting invoices, reconciling payments, ledger reviews
- Customers may deal with the financier under a factoring facility
- Fee structures can be complex, and exit terms can be restrictive
- Disputed or partly completed invoices often aren’t funded
Questions to ask before you sign
If you do go down the invoice finance route, put these questions to any provider:
- What share of each invoice do you advance, and when is the balance released?
- What are all the fees, including minimums, audits and early exit costs?
- Do I need to fund my whole ledger, or can I choose invoices?
- Who collects from my customers, and how do you communicate with them?
- What happens if a customer pays late or doesn’t pay at all?
- How long is the minimum term, and how much notice do I need to give to end it?
- Will you need priority over any existing security on the PPSR?
Clear answers to those seven questions will tell you more than any brochure.
Tips to shrink the gap before you borrow
- Invoice the day the work is done, not at month end
- Offer easy payment options and send reminders before the due date
- Check new customers’ payment history before extending terms
- Agree progress invoicing on longer jobs
- Run the numbers through the cash flow gap calculator
Next step
Cash stuck in unpaid invoices? Find out whether a loan, invoice finance or a mix suits your business. Apply in about 30 seconds. It’s free, doesn’t mark your credit file, and an expert reviews every application before matching you to the right lender. Or call 09-888 5252.
