Invoice Finance is a flexible working capital solution that helps Australian businesses access cash tied up in unpaid invoices.
But how does Invoice Finance work?
In this guide, we outline the process of obtaining and using Invoice Finance, and how it can help improve cash flow, support day-to-day operations and create room for future growth.
To find out more about the benefits of ScotPac’s offering, visit Invoice Finance product page.
How does Invoice Finance work for Australian businesses needing fast cash flow?
Invoice Finance is a customisable funding facility that helps businesses access money owed to them by customers before outstanding invoices are settled.
In simple terms, Invoice Finance works like this:
- You provide goods and services to your customers and issue a standard invoice.
- Instead of waiting for standard payment terms, often 30, 60 or even 90 days, you submit eligible invoices to ScotPac for financing.
- You can access up to 85% of the invoice value.
- When your customer settles their outstanding account, you receive the remaining balance, less applicable fees.
What is the process of Invoice Finance step by step?
Invoice Finance is designed to provide flexible and fast access to working capital.
Once your facility is approved and set up, the Invoice Finance process is clear and structured, while also giving your business control over when and how much funding you access.
Step 1 – Submit invoices
When you need additional working capital to manage cash flow, you can upload eligible invoices through ScotPac’s online portal for financing.
You can choose how much finance you need based on your sales ledger. The more your business sells and invoices, the more your available funding may be able to grow.
Step 2 – Receive the advance
ScotPac can release up to 85% of the value of eligible invoices, often within 24 hours.
This can help your business meet payroll, cover operating expenses, invest in new business, take on new contracts or order stock.
Step 3 – Collect payment
With faster access to working capital, your business can continue operating while waiting for standard customer payment terms to run their course.
When your customer settles the invoice, the payment is applied to your facility.
Step 4 – Final settlement
Invoice Finance includes fees for administration and service purposes.
Once applicable fees are deducted, the remaining balance is released to your business.
Invoice Finance can help create more predictable cash flow and reduce reliance on overdrafts or business loans to cover short-term working capital gaps.
What are the different types of Invoice Finance?
Broadly speaking, there are two primary types of Invoice Finance. The process for each differs slightly and can affect how Step 3 – Collect payment is managed.
Invoice Factoring Explained
With Invoice Factoring, your lender manages your sales ledger. In other words, the lender is responsible for collecting payment from customers.
This can suit businesses that do not have a strong accounts receivable function or want to outsource debt collection.
However, it generally means lower levels of confidentiality because customers are aware of the finance provider’s involvement.
Invoice Discounting Explained
With Invoice Discounting, your business remains in control of collections and customer relationships.
This can suit businesses that have an accounts receivable function, want to manage collections in-house and prefer to keep the facility confidential.
How is the Invoice Finance process different from traditional business loans in Australia?
Invoice Finance works differently from a traditional business loan.
- It is linked to your sales and unpaid invoices, rather than provided as a fixed lump sum.
- Eligibility is not based only on your credit score.
- Repayment happens when your customer pays, rather than on a fixed repayment schedule.
- The funding amount can grow with your eligible invoice volume.
- There is generally no need for property-backed collateral because the invoices serve as security.
- The process can be faster and more accessible for growing businesses.
How does Invoice Finance’s fees and costs work?
Invoice Finance is not a free funding facility but at ScotPac we ensure all fees are transparent and understood. So, what costs and fees are involved in Invoice Finance?
Typical fees with Invoice Finance may include:
- service fee, based on facility structure and risk
- a monthly management or administration fee
- an establishment fee, usually charged once when the facility is set up
To compare the administration and setup costs of ScotPac against other providers, call our team or submit an enquiry.
Why choose ScotPac for your Invoice Finance?
or over 35 years, ScotPac has been helping small and medium-sized businesses in Australia access Invoice Finance and other working capital solutions.
We help make the process transparent, understood and structured around your business goals.
ScotPac:
- is Australia and New Zealand’s largest specialist provider of working capital solutions
- currently supports more than 9,300 businesses
- funds over $26.3 billion in invoices each year
If you are looking to improve cash flow, reduce financial stress and create more room for growth, get in touch with the ScotPac team today to discover how Invoice Finance can work for your business.
