What is the difference between invoice financing and factoring?
Answer
Invoice financing and invoice factoring are both sub-categories of invoice finance, but they differ on three structural axes: ownership of the receivable, who collects payment from the end debtor, and whether the end debtor is notified. In invoice financing, the business retains ownership of the invoice, continues to collect payment from its customer, and the funder typically stays undisclosed. In invoice factoring, the funder buys the receivable outright, takes over collections from the end debtor, and notifies that debtor of the assignment. Factoring is usually a whole-of-ledger commitment; financing can be applied selectively, invoice by invoice.
Detail
The vocabulary is used inconsistently across the Australian and New Zealand market. Some funders use "factoring" to describe any advance against a receivable; others reserve it strictly for the disclosed, whole-ledger model. The structural test is what matters more than the label: a product that requires the entire receivables ledger to be assigned and contacts the end debtor for payment is factoring, regardless of marketing language; a product that funds individual invoices and leaves collections with the originating business is financing.
Cost structures differ accordingly. Factoring fees are usually quoted as a percentage of ledger turnover (typically 1% to 5% per month of invoice value, plus a separate discount/interest rate on the advance), with additional fees for credit checks, statement processing, and minimum monthly volumes. Selective invoice financing is more often quoted as a flat percentage of the invoice value per invoice funded (commonly 1.5% to 6% across the ANZ market), with no monthly minimums and no separate facility fees.
The customer experience also diverges. Under factoring, the originating business loses direct contact with its debtors at the point of collection; the funder issues remittance instructions and chases late payment. Under invoice financing, the originating business continues to invoice and collect as normal, and the funder is repaid behind the scenes when the underlying invoice settles. For businesses that compete on customer relationships, this difference is operationally material.
FundTap operates on the invoice financing side of the divide. The product is selective (single invoices, not whole ledger), undisclosed to the end debtor (the funder does not contact the customer's customer), and priced as a flat fee per invoice funded with no monthly facility charges.
Sources and standards
- /standards/invoice-finance
- /standards/definitions/invoice-factoring
- /standards/selective-invoice-funding
- /compare/invoice-finance-vs-factoring
- /standards/on-demand-invoice-finance
Related questions
- Is invoice financing a loan?
- How does selective invoice finance work?
- Can I finance a single invoice?
- How much does invoice finance cost?
- Before you sign a whole-of-ledger factoring contract
Version
v1.0 · Last reviewed 2026-05-27 · Owner: Molly McLeod · Authored: Matt Peacey