Invoice financiers: the stall that buys time on your invoices

If your business sells to other businesses, you probably know the feeling: the work’s done, the invoice is out, and the money won’t arrive for 30, 60 or even 90 days. Meanwhile wages, suppliers and Inland Revenue want paying now. Invoice financiers have built a whole stall around that gap.

How does invoice finance work?

The basic idea is simple. You raise an invoice to a business customer. The invoice financier advances you a large share of its value now. When the customer pays, the financier takes its advance back plus its charges, and passes the remainder to you.

There are two main styles:

Style	Who collects from your customer	Do customers know?	Typical fit
Factoring	Usually the provider	Usually yes	Smaller businesses wanting help with collections
Discounting	Usually you	Often confidential	Larger businesses with good credit control
Selective (spot) invoice finance	Varies	Varies	Occasional needs; no long contract

The provider usually registers a security interest on the Personal Property Securities Register over your receivables, and sometimes over wider business assets.

Who runs invoice finance stalls in New Zealand?

You’ll find three broad types of provider:

• Bank-linked invoice finance units, which tend to suit larger, established businesses with significant monthly invoicing.
• Specialist invoice financiers, which focus solely on receivables and often take smaller or more varied ledgers.
• Online platforms, which plug into accounting software and let you fund invoices selectively.

Each has a different minimum size, contract style and appetite for particular industries. Construction invoices with retentions and progress claims, for example, are trickier than straightforward wholesale invoices, and some providers won’t touch them.

What does an invoice financier look at?

Unlike most lenders, an invoice financier cares as much about your customers as about you:

1. Who owes you money. Established customers with good payment records make strong collateral.
2. How concentrated your ledger is. One customer making up most of your invoices is a risk.
3. Your invoicing and credit control. Clear terms, accurate invoices and few disputes.
4. Dilution. Credit notes, disputes and returns that reduce what’s actually collected.
5. Your own position. Trading history, credit file, IRD and existing security interests.

If another lender already holds a general security agreement over your business, the invoice financier will usually need it to agree to the arrangement.

What does invoice finance cost?

Charges are usually built from a few pieces, and that’s what makes comparing providers fiddly:

• a service or administration fee, often based on invoice value or turnover;
• a charge on the money advanced, accruing until the customer pays;
• minimum monthly fees, payable even in quiet months;
• setup, audit or due-diligence fees; and
• exit or termination fees, especially on longer whole-of-ledger contracts.

The fairest comparison is total dollars over a typical month, plus the cost of leaving. If you’re also considering a line of credit or overdraft, our offer comparer lets you put the options side by side.

Not sure invoice finance suits your ledger? Ask us. There’s no credit check to enquire and one person looks at your situation.

How do you shop invoice financiers well?

Illustrative example. A Hamilton commercial cleaning company invoices large property managers on 45-day terms and is growing fast. Two providers quote. One offers a whole-of-ledger facility with a lower charge on funds advanced but a minimum monthly fee and a twelve-month contract with notice period. The other offers selective funding with no minimum and no contract, but higher charges per invoice. In its busy season, the whole-of-ledger facility is cheaper. Across the year, with quieter months, the selective option costs less because the minimum fee never bites. The owner chooses selective for now, with a plan to revisit once invoicing steadies.

Questions worth asking every provider:

• What percentage of each eligible invoice will you advance?
• Which invoices or customers are ineligible?
• What are all the fees, including minimums and exit costs, in dollars?
• How long is the contract, and what’s the notice period?
• What happens if a customer doesn’t pay: who carries that risk?
• Will my customers be contacted, and how?

How does invoice finance fit with GST and tax bills?

Faster cash from invoices can make it easier to meet obligations to Inland Revenue on time, including GST at 15% that you’ve charged on invoices your customers haven’t yet paid. If your business accounts for GST on an invoice basis, you can owe GST on sales before the cash arrives, which is exactly the gap invoice finance can bridge. Your accountant can tell you which GST accounting basis suits your business and whether changing it would ease the timing pressure. Either way, map the invoice finance costs against the penalties and stress of paying tax late before deciding.

When is invoice finance the wrong stall?

It’s a poor fit if you sell mainly to consumers, if your invoices are frequently disputed, or if your margins are so thin that the fees would swallow the profit. It’s also not a fix for a business that’s losing money; it speeds up cash you’ve already earned but doesn’t create more. In those cases, a conversation about cash flow, pricing or a different kind of finance is more useful.

Want to unlock cash from your invoices?

If you’re waiting on customers and the bills won’t wait for you, tell us about your ledger. Asking costs nothing and leaves your credit file untouched. Your enquiry goes to one real person rather than being fanned out to every financier with a website. Please be accurate about your customers, invoice values and payment terms on the form so we can match you to the right provider first time. Start your enquiry.