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What Is Debtor Factoring?
Debtor factoring is another name for invoice factoring — a financing arrangement where a business sells its outstanding debtor invoices to a finance company in exchange for immediate cash. The finance company then manages the collection of those debts from your customers.
The terms "debtor factoring" and "invoice factoring" are used interchangeably in Australia and New Zealand.
How Debtor Factoring Works
When you use debtor factoring, a factoring company advances you a percentage of the outstanding invoice value — typically 70–90%. Your customer is informed that the debt has been assigned, and the factoring company collects payment directly. Once paid, you receive the remaining balance minus the factoring fee.
Debtor factoring is often structured as a whole-ledger arrangement, meaning the factoring company takes on all of your outstanding invoices, not just selected ones.
Key Characteristics of Debtor Factoring
- Customer notification: Your customers are typically told the debt has been sold to a factoring company.
- Collections management: The factoring company handles chasing payments from your debtors.
- Whole-ledger assignment: Most debtor factoring arrangements require you to hand over all invoices, not just selected ones.
- Lock-in contracts: Many providers require minimum terms of 12–24 months.
Debtor Factoring vs. Fundtap Invoice Financing
Fundtap is an on-demand alternative to traditional debtor factoring. Instead of handing over your entire debtor ledger, you choose which invoices to fund. Your customers are never notified, there are no lock-in contracts, and funds arrive within hours — not days.
For businesses that value privacy, flexibility, and control, Fundtap offers a simpler solution.
Debtor factoring is when a business sells its outstanding customer invoices (debtors) to a finance company in exchange for an immediate cash advance. The finance company then collects payment from the customers.
Yes. Debtor factoring and invoice factoring refer to the same type of financing arrangement. Both involve selling outstanding invoices to a third party for immediate funds.
Traditional debtor factoring does notify your customers, as the debt is legally assigned to the factoring company. Fundtap invoice financing is confidential — your customers never know.
Debtor factoring fees typically range from 1–5% per month plus admin and service fees. Many providers also require minimum monthly volumes and long-term contracts.
With debtor factoring, the finance company manages collections from your customers. With invoice discounting, you retain control of collections and the arrangement is typically confidential.