Online invoice finance: turning unpaid invoices into cash flow

If you sell to other businesses, you have probably felt the squeeze: the work is done, the invoice is sent, and the money arrives five, seven or ten weeks later. Meanwhile wages, suppliers and Inland Revenue want paying now. Invoice finance closes that gap, and online providers have made it far simpler to run.

How does online invoice finance work?

1. Connect your ledger. You link Xero or MYOB to the provider with a read-only connection, or upload your aged receivables.
2. Invoices are approved. The provider reviews your customers and which invoices it will fund.
3. You receive an advance. A percentage of approved invoices is paid to your business account.
4. Your customer pays. Either to you or to the provider, depending on the structure.
5. The balance is released. The remainder of the invoice, less the provider’s fees, comes back to you.

Because the facility is tied to your invoices, it grows naturally as your sales grow. More work invoiced means more available funding, without a fresh application each time.

Factoring or discounting — what is the difference?

	Invoice factoring	Invoice discounting
Who collects from customers	The provider	You
Do customers know?	Usually yes	Usually no (confidential)
Who it suits	Smaller businesses wanting help with collections	Established businesses with good credit control
Admin for you	Lower	Higher
Typical entry requirements	More flexible	Stricter on turnover and systems

Some providers also offer selective or single-invoice finance, where you choose individual invoices to fund instead of the whole ledger. That can suit a business with one large, slow-paying customer.

Who is invoice finance best for?

It works well for business-to-business companies with:

• customers who are reliable but slow, such as large corporates, councils or government agencies;
• payment terms of 30 to 90 days;
• growth constrained by cash rather than demand;
• tidy accounting software with up-to-date receivables.

Common sectors include wholesale and distribution, labour hire, manufacturing, transport and logistics, construction subcontracting, and professional services.

It is not suited to businesses selling to consumers, or to those whose receivables are mostly disputed or very old.

What does the provider look at?

Unlike a standard loan, the strength of your customers is central. A provider wants to know who owes you money and how reliably they pay. It will also look at your own track record, how concentrated your debtors are (one customer owing 70% of your ledger is a risk) and whether invoices are for completed work rather than progress claims or pre-billing.

Tidy your ledger before connecting. Our guide to linking Xero or MYOB has a short checklist. If you want to know whether your customer mix would qualify, ask through a quick enquiry.

What does invoice finance cost?

Costs are usually a combination of a service or facility fee and a charge on the money advanced for as long as it is outstanding. Some providers charge per invoice. Because invoices are typically paid within weeks, the total cost depends heavily on how quickly your customers pay. Ask the provider to show you the dollar cost of funding a typical month’s invoices, paid on your customers’ usual timelines.

How do you stay safe with invoice finance?

Invoice finance involves money moving between you, your customers and the provider, which makes it attractive to fraudsters. A fake email telling customers your bank details have changed can divert payments meant for the provider or for you. Lock down business email with two-factor authentication, tell customers in writing how you will notify genuine bank changes, and read payment-redirection fraud for the details.

Worked example (illustrative): a Penrose wholesale distributor supplies three supermarket chains on 60-day terms. Growth means buying more stock before old invoices are paid. With a confidential invoice discounting facility linked to Xero, it receives an advance within a day or two of invoicing, pays suppliers on time and takes an early-payment discount from one of them that offsets part of the finance cost.

How does invoice finance compare with a line of credit?

A line of credit gives you a fixed limit based on overall cash flow. Invoice finance gives you a limit that tracks your receivables. If your main problem is slow-paying business customers, invoice finance often unlocks more. If your gaps come from seasonality or irregular costs, a line of credit may suit better. Some businesses use both.

How quickly can an invoice finance facility be set up?

The first set-up takes the longest: the provider reviews your business, your debtors and your ledger, and agreements are signed. With a clean Xero or MYOB file and cooperative customers, that can be possible within days to a couple of weeks. After that, each new invoice can usually be funded quickly, because the provider already knows your business and sees new invoices through the live connection. Businesses that wait until a cash crunch to set up a facility often find the set-up time is the hardest part. Arranging it before you need it gives you the option without the pressure.

Is there a minimum size?

Many providers prefer a certain level of monthly invoicing, while selective invoice products can work for smaller businesses with one or two large invoices. Tell us your typical monthly invoicing and the number of customers, and we can tell you what is realistic.

Get started online

Tell us roughly how much is outstanding in invoices, who your main customers are and their usual payment terms. The enquiry takes about a minute, with no credit check at that stage, and it is read by one team rather than sent to a raft of lenders. A specialist will call to talk through whether factoring, discounting or another option fits. Check your invoice finance options.