Invoice financing can be a fast way to raise funds by releasing the capital tied up in your unpaid invoices. Nearly 25% of business owners have delayed paying themselves, and 23% have delayed paying their suppliers due to the time it takes their customers to pay.

You can use Invoice Finance, also known as Debtor Finance, to bridge the gap between raising an invoice and getting paid. Instead of waiting for 30+ days for your customer to pay your invoice, you can submit it to a finance company for funding.

It’s a flexible way to boost working capital. But like all types of financing, there are costs involved.

In this guide, we’ll break down the costs of invoice financing so you can see if it’s a good option for your business.

The Cost of Financing an Invoice

There are many factors that add up to the total cost of financing an invoice. If you get a quote from a lender, you can expect to see the following costs included:

Discount Fee or Interest Fee

You will be charged interest for the time that your invoice is outstanding. This is often called a discount fee and makes up a large percentage of the overall cost of Invoice Finance.

The interest rate can vary according to several factors we’ll cover later in the guide. Generally, Invoice Finance interest rates are around 10% per annum.

Service Fee

The service fee is a flat fee that is usually between 0.5-1.5% of the total invoice value. This is a set fee that isn’t impacted by how long it takes your customer to pay.

If the service fee on a $40,000 invoice is 1%, the cost will be $400 if it takes your customer three weeks or three months to pay the invoice.

Advance Rate

The advance rate isn’t a cost, but it is something you should pay attention to. The advance rate is the total amount you will receive upfront after your invoice is approved for financing.

If you submit an invoice with a total value of $50,000 and the lender offers an 80% advance rate, you will receive $40,000 as a cash advance. The remaining balance, less fees, will be released once the customer has paid the invoice.

Example Calculations for the Cost of Invoice Finance

Let’s look at an example to see how the overall cost of Invoice Finance is calculated.

A business wants to improve cash flow by releasing the capital tied up in outstanding invoices with a total value of $50,000.

The business submits the invoices to the lender and agrees to an 80% advance rate, so the lender provides $40,000 as an upfront cash advance.

The service fee for the facility is 1%, so the cost is $500.

The discount rate is 8% per annum, and the customer pays the invoice after 60 days.

Total discount rate fees:

($50,000 x 8%) x (60/365 days) = $657.53

  • Service Fee:


  • Discount Fee:


  • Total cost of invoice financing:


Alongside these costs, there may also be additional account management, collections, and establishment fees, depending on the terms of the facility.

What Factors Influence the Cost of Invoice Finance?

The total Invoice Finance cost can vary depending on the business submitting the invoices and its customers.

Here’s a breakdown of the different factors that can affect the cost of financing:

Your Customer’s Creditworthiness

The more creditworthy your customers, the less risk involved for the lender. The financing company will look at your customer’s credit rating and history of paying on time as part of the due diligence process before agreeing to finance an invoice.

Your Business Credit Rating and Trading History

The lender will review your financial documents to determine if your company is a good candidate for Invoice Finance. They will also look at your industry when assessing your business for funding. 

Unlike traditional property-secured bank loans, Invoice Finance is accessible to businesses that don’t have a perfect credit rating or extensive trading history. 

Selective or Whole Ledger Invoice Financing

You may have the option of choosing between whole ledger or Selective Invoice Finance. With whole ledger, you submit your entire accounts receivable ledger for financing. Selective Invoice Finance allows you to choose which invoices or accounts you want to submit for funding. 

Selective Invoice Finance offers more flexibility, but the average cost per invoice is generally higher than a whole ledger funding facility.

Invoice Discounting or Factoring

Another factor that influences Invoice Finance cost is the type of facility. When you choose to use your accounts receivables as collateral for funding, you’ll come across Factoring and Invoice Discounting.

Both are types of Debtor Finance. The main difference between the two is the collection of the customer invoice submitted for funding. 

With Invoice Discounting, your business will be responsible for collecting payment of the invoice and the accounts receivable finance facility is confidential. This type of funding is generally more suitable for larger companies with a dedicated accounts and collections department. 

With invoice factoring, the finance company takes care of collections, and the customer will be aware of the funding facility. This can benefit a small business that doesn’t have an established collections team. 

Due to the additional collections and account management services, the average invoice factoring cost is higher than invoice discounting.

Read our guide on Invoice Discounting vs. Factoring to learn more about the different types of invoice financing.

Recourse or Non-Recourse Invoice Factoring

When you decide to use your accounts receivable as collateral for funding, you’ll come across two main types of invoice factoring: recourse and non-recourse.

With recourse factoring, the risk of your customer’s debt remains with your business. If your customer cannot pay an invoice that has been financed, you will be liable for the non-payment. 

Non-recourse factoring transfers the risk of non-payment from your business to the invoice factoring company. Once the invoice has been financed, you are no longer responsible for the debt. 

Due to the additional risk to the finance company, you can expect to pay more for non-recourse invoice factoring. This cost is usually billed as an extra service like Bad Debt Protection.

However, if you have a high credit rating, you may be able to access non-recourse finance at a similar cost to a recourse funding facility.

Bad Debt Protection

Bad Debt Protection is an extra service that isn’t usually included in an invoice financing facility. The service offers additional protection if a customer is unable to pay an invoice that the invoice financing company has funded.

Bad Debt Protection is usually charged as a percentage of the total invoice value. The rate can vary according to the creditworthiness of your customers.

Alternatives to Invoice Finance

Invoice Finance can be a fast and straightforward way to increase working capital and cover cash flow gaps. But it isn’t suitable for all businesses.

Depending on the reasons for seeking finance and your unique business circumstances, you may benefit more from alternative finance options.

Asset Finance

Asset Finance helps businesses fund the purchase of new equipment, machinery, and vehicles. If you need to make a large purchase to grow your business, you can use Asset Finance to cover the upfront cost.

You can start using the asset immediately and spread the investment cost over a more extended period. Funding terms range from 24 to 60 months.

Trade Finance

Trade Finance is a type of business funding that helps you release capital tied up in the supply chain. You can use Trade Finance to pay your domestic and international suppliers upfront so that you can get the raw materials, inventory, and stock you need to grow your business.

With increased purchasing power, you can also negotiate early payment and bulk buying discounts to increase your margins and boost your profits.

You can find out more about Trade Finance and how it can help your business in our guide, What Is Trade Finance?.

Home Loans and Business Loans

If you own residential property, you may be able to use the extra equity you have built up to secure a business loan or credit facility. Property secured business lending can be a cost-effective way to cover cash flow gaps and fund investment.

You can get a lump sum upfront as a business loan or access a property secured line of credit that you can use as and when you need. Our home loans and business loans are much more flexible than a traditional mortgage, and you can receive conditional approval in as little as 48 hours. 

Because the funding is secured by your property, you can typically access higher amounts of credit at a lower cost.  

Financing Your Business With ScotPac

Invoice Finance can be a cost-effective way to finance your business. You can get the cash injection you need to overcome cash flow gaps and keep your business growing.

Here at ScotPac, we provide simple and transparent business finance. We are a trusted growth partner of 1000s of SMEs in Australia and New Zealand – our clients grow three times faster than the average business.

As Australia’s largest Invoice Finance provider, we provide the most competitive pricing. Give us a call on the number below or fill in our online enquiry form, and we’ll be in touch shortly to help you find a funding solution that’s right for your business.