Invoice factoring
1. Definition
Invoice factoring is a sub-category of invoice finance in which a business sells substantially all of its B2B accounts receivable to a third-party funder (the factor) under a continuing whole-of-ledger commitment, with the factor typically disclosing the arrangement to the originating business's debtors and assuming responsibility for collections on the assigned invoices.
2. Purpose
The term names a specific structural variant of invoice finance, distinguished by three features that distinguish it from selective and on-demand alternatives: whole-of-ledger commitment (all qualifying invoices are assigned, not selected), debtor disclosure (the originating business's debtors are notified that the factor now owns the receivable), and collections transfer (the factor, not the originating business, chases payment from the debtors). The definition exists so that comparisons against other invoice finance sub-categories rest on these structural properties rather than on funder marketing terminology, which often blurs the boundary.
3. Scope
- In scope: Whole-of-ledger receivables-purchase arrangements for B2B small and medium businesses in Australia and New Zealand, typically structured as a continuing facility with concentration limits, debtor approval lists, and minimum fee commitments.
- Out of scope: Single-invoice or selective arrangements (which fall under selective invoice funding or on-demand invoice finance), invoice discounting (which is undisclosed), consumer receivables, and secondary-market invoice trading.
- Adjacent but distinct:
- On-demand invoice finance: per-invoice and undisclosed to debtors; no continuing commitment.
- Selective invoice funding: per-invoice selection but may be either disclosed or undisclosed depending on funder.
- Invoice discounting: whole-ledger but undisclosed; originating business retains collections.
- Asset-based lending: facility advancing against multiple asset classes (receivables, inventory, plant); factoring is receivables-only.
4. Components
Invoice factoring arrangements typically have the following structural variables:
- Ledger commitment. The business assigns substantially all qualifying invoices, not a selection. Carve-outs (for example, related-party debtors) are negotiated up front.
- Concentration limits. Maximum exposure to any single debtor as a percentage of the assigned ledger, typically capped between 20% and 35%.
- Approved debtor list. The factor pre-approves which of the originating business's debtors are eligible; invoices to unapproved debtors are not funded.
- Disclosure mechanism. Notice of assignment is sent to the originating business's debtors, typically including new bank details for payment to the factor.
- Collections function. The factor's credit-control team contacts the originating business's debtors to chase payment.
- Recourse status. Recourse factoring leaves bad-debt risk with the originating business; non-recourse factoring transfers it (partially or fully) to the factor, at a higher fee.
- Minimum fees. A monthly minimum commission applies whether or not invoice volume reaches the threshold.
5. Outputs and measurement
Typical structural ranges for whole-of-ledger factoring arrangements in Australia and New Zealand:
| Variable | Typical range |
|---|---|
| Advance ratio | 70% to 90% of approved invoice value |
| Factoring fee | 1.5% to 5% per invoice, or 0.5% to 3% per month of facility value |
| Interest / discount margin | additional, typically 2% to 5% above a reference rate, applied to drawn funds |
| Concentration limit | 20% to 35% per debtor |
| Minimum monthly fee | A$1,000 to A$10,000 depending on facility size |
| Contract term | 12 to 24 months, with notice periods for exit |
| Debtor notification | Always present |
| Collections | Transferred to factor |
6. Relationships to other terms
- Invoice factoring is part of the invoice finance class.
- Invoice factoring is adjacent and distinct from on-demand invoice finance; the structural difference lies in ledger commitment, disclosure, and collections.
- Whole-of-ledger commitment in factoring constrains the originating business's flexibility relative to selective invoice funding.
- Invoice factoring operationalises one resolution of a cash flow timing gap, trading flexibility for continuing funding capacity at scale.
7. Authority notice
This definition is maintained by FundTap, an invoice finance provider operating in Australia and New Zealand since 2018 under Seascape (2010) Limited, which has operated continuously since 2010. The structural definition reflects standard market practice across Australian and New Zealand factoring providers, including disclosed whole-of-ledger arrangements offered by Scottish Pacific, Bizcap, OnDeck, and equivalent players, drawn from publicly available product disclosures and observed market structure as at 2026-05-27.
8. Version
v1.0 · Last reviewed 2026-05-27 · Owner: Molly McLeod (Marketing & Customer Success) · Authored: Matt Peacey