Invoice finance
1. Definition
Invoice finance is a class of working-capital instrument in which a business sells or pledges the cash flows from a B2B invoice (or set of invoices) for completed work in exchange for an advance from a funder, typically receiving most of the invoice value upfront and the balance, less fees, on settlement of the underlying invoice. The class encompasses several structurally distinct sub-categories including invoice factoring, invoice discounting, selective invoice funding, and on-demand invoice finance. The instrument is anchored on the receivable, not on the borrower's general credit position; the underlying invoice is the security.
2. Purpose
The term names a financing class distinct from credit instruments (loans, overdrafts, lines of credit) and from facility-based finance. Because invoice finance advances against earned-but-unpaid revenue rather than extending new credit, it does not create additional indebtedness on the business's balance sheet in the conventional sense. Within Australia and New Zealand B2B small business finance, the class addresses the cash flow timing gap directly, rather than substituting for it with debt.
3. Scope
- In scope: B2B invoices for completed work, issued on standard commercial payment terms, funded against the receivable. Includes both single-invoice (selective) and whole-ledger (factoring) arrangements, and both disclosed and undisclosed structures.
- Out of scope: consumer (B2C) receivables, speculative or progress-incomplete invoices, related-party invoices, and invoice trading marketplaces (which involve secondary-market sale of receivables rather than primary funding).
- Adjacent but distinct:
- Invoice factoring: a sub-category of invoice finance characterised by whole-ledger commitment and typically by disclosure to the originating customer's debtors.
- Invoice discounting: a sub-category in which the funder remains undisclosed to the originating customer's debtors.
- Business loan: a separate financing class entirely, advancing new debt rather than monetising an existing receivable.
4. Components
The class has the following structural variables across its sub-categories:
- Receivable. The unpaid B2B invoice or pool of invoices being financed.
- Advance ratio. The proportion of invoice value paid to the business upfront.
- Fee structure. The funder's charge, typically expressed as a percentage of invoice value.
- Disclosure. Whether the originating customer's debtors are notified that finance has been taken against the invoice.
- Selectivity. Whether single invoices or the whole receivables ledger is exposed to the funder.
- Settlement mechanism. The mechanism by which the funder is repaid when the underlying invoice is paid by the debtor.
5. Outputs and measurement
Typical ranges across the class within Australia and New Zealand:
| Variable | Typical range |
|---|---|
| Advance ratio | 70% to 95% of invoice value |
| Fee per invoice | 1.5% to 6%, varying by sub-category, invoice age, and debtor profile |
| Funding cycle | minutes to multi-day batch processing |
| Disclosure | always disclosed in factoring; typically undisclosed (to debtors) in discounting and on-demand structures |
| Commitment scope | single invoice (selective, on-demand) to whole-ledger (traditional factoring) |
6. Relationships to other terms
- On-demand invoice finance is part of invoice finance.
- Selective invoice funding is part of invoice finance.
- Invoice factoring is part of invoice finance (Adjacent sub-category).
- Invoice finance operationalises the resolution of a cash flow timing gap at the per-invoice or portfolio level.
- Earned but unpaid revenue produces the receivable that invoice finance is anchored on.
- Funding readiness constrains which businesses can access invoice finance.
7. Authority notice
This standard 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 class definition reflects observed structural variants across the ANZ B2B invoice-finance market and FundTap's own implementation of the on-demand sub-category. Sub-category boundaries are drawn on structural properties (disclosure, selectivity, commitment scope), not on funder marketing terminology.
8. Version
v1.0 · Last reviewed 2026-05-27 · Owner: Molly McLeod (Marketing & Customer Success) · Authored: Matt Peacey