TL;DR: Invoice factoring is one way to fund unpaid invoices, but it's not the only option. This guide explains the differences between factoring, invoice finance, and invoice discounting.
A factoring company, also called a factor, is a financial services business that buys invoices from other businesses in exchange for immediate cash. They then collect payment from the original business's customers.
When a business needs cash from its outstanding invoices before customers pay, a factoring company provides that cash upfront. In exchange, the factoring company:
The factoring company makes money through the fees charged on each invoice, typically a combination of a service fee and a discount fee (interest on the advance period).
Full-service factors: Manage the entire collections process, handle debtor credit checking, and may offer credit insurance. Suited to businesses that want to fully outsource their accounts receivable management.
Disclosed factors: Your customers know their invoices have been sold to the factor and are directed to pay the factor. The most common arrangement.
Confidential factors: Collections are managed in the business's name, so customers are less aware of the arrangement. Less common in traditional factoring.
Before engaging a factoring company, understand:
The traditional factoring model has been significantly improved by fintech solutions. FundTap offers the core benefit, immediate cash from outstanding invoices, without the whole-ledger commitment, customer notification, or long-term contracts that characterise traditional factoring.
For businesses that want to access invoice funds quickly without the restrictions of traditional factoring arrangements, selective invoice finance is worth exploring before committing to a factoring contract.
FundTap provides on-demand invoice finance for AU and NZ SMEs. Select an invoice and get funded within hours, no lock-in, fees from 4%.
Yes. FundTap serves businesses across both countries, integrating with Xero, MYOB, and QuickBooks.
Most businesses receive funds within hours. Once set up, funding is typically same-day.