Updated on 15th October 2025
What is Invoice Finance? How does it work and is it right for you and your business’s needs?
The reality of the Australian business landscape is that many business owners and managers – especially small and medium-sized enterprises (SMEs) – can be forced to wait weeks, if not months, for customers and clients to pay their invoices.
This puts undue pressure on cash flow, complicates financial management, and can prevent businesses from thriving – or even surviving – in competitive markets. That’s why Invoice Finance is so important for businesses in Australia, and why we’ve created this article to help explain how it works.
The Impact of Late Payments on Australian SMEs
Today, the average time it takes for small businesses in Australia to get paid is 26.2 days. However, 32% of invoices are not paid on time and some SMEs have to wait for an average of 56 days to receive the cash owed to them.
And the problem is getting worse, not better.
Delays in invoice payments are costing Australian SMEs over $1 billion per year – and when combined with rising costs, tight markets, labour shortages and expensive debt, even profitable businesses can feel the pressure.
1. The impact on cash flow
Unpaid invoices make it harder to cover operational expenditure, such as wages, rent, and supplier costs. This can sometimes mean that businesses rely on expensive overdrafts or credit cards to maintain the cash flow they need.
2. Stalling growth
When SMEs don’t have access to sufficient working capital, their ability to hire staff, invest in equipment, or expand into new markets is significantly hindered – making long-term growth and success much harder to achieve.
3. Financial stress
According to NAB’s ‘What’s Keeping SMEs Awake at Night’ report, 43% of business owners cite cash flow as their biggest concern. A significant proportion of this is attributed to ‘external administration’. Late payments can place businesses under undue stress to secure the working capital they need just to maintain day-to-day operations.
What is Invoice Finance?
Invoice finance (sometimes called debtor finance in Australia) is a financial solution that lets businesses access cash tied up in unpaid invoices. Instead of waiting up to 30, 60, or 90 days for customers to settle bills, you can receive most of the invoice value upfront, up to 85% with ScotPac, turning accounts receivable into immediate working capital.
How Does Invoice Finance Work?
Invoice Finance allows SMEs to unlock cash from invoices that have yet to be paid. Instead of having to wait for customers and clients to settle their outstanding accounts, Invoice Finance allows businesses to access the funds in advance and thereby not be at the mercy of their customers.
How does Invoice Finance work in the real world?
Step 1 – Issue an invoice
As normal, you send an invoice for the goods or services you provide to your customer and include the standard trading terms – most likely 30 days in Australia.
Step 2 – Submit the invoices for Invoice Factoring or Discounting
As part of setting up your Invoice Finance facility with ScotPac, you submit the invoice or invoices to us and receive a percentage of their total value – up to 85% – straight away, even though the invoices haven’t been paid yet.
Step 3 – Receiving Payment from the Customer
Your customer will settle the invoice by paying either you or your finance provider – depending on the structure of your Invoice Finance arrangement.
Step 4 – Settle Your Facility
Once the invoices have been paid, you are provided with the outstanding balance of the value of your invoices, less the fees owed to the financial provider.
Key Types: Invoice Factoring vs Invoice Discounting
There are two main types of Invoice Finance and while both help unlock cash from invoices that have yet to be paid, it is important to understand the difference to know which option is right for you.
Payment collection
With Invoice Factoring, the finance provider – such as ScotPac – takes responsibility for collecting payments on the outstanding invoices. With Invoice Discounting, that responsibility stays with you as the business owner.
Confidentiality
Because the finance provider manages payment collection, your customers will likely be aware you’re using an Invoice Finance facility with Invoice Factoring. With Invoice Discounting, your funding arrangement can remain confidential.
Which is right for you?
In general, Invoice Factoring can be a helpful option for small businesses that don’t have a dedicated accounts receivable team or debt collection process. Larger or more established businesses that manage their own debtors may prefer to retain control over invoice collection – and maintain confidentiality – through Invoice Discounting.
Business’s Eligibility for Invoice Finance
It is important to note that, as with all financial facilities, eligibility and criteria can differ from financial institution to institution. In general, some of the typical requirements include:
- ABN and GST registration
- Stable operating trading history for at least 12 months
- Business to business operation (as opposed to business to consumers)
- Creditworthy debtors
- Basic financial statements and documentation
Once approved for Invoice Finance, you are able to control which invoice or invoices you submit for financing, allowing you to utilise this flexible cash flow management facility in a way that suits you.
Why Australian Businesses Need Invoice Finance
Last year, the use of Invoice Finance facilities increased by over 15%, according to the latest industry data. But now that you know what Invoice Finance is, is it right for you?
Invoice Finance is particularly effective for B2B businesses that face long payment terms, need to unlock cash from invoices to fund growth or cover operational expenses, or want a fast, flexible working capital solution that allows them to stay in control.
ScotPac – your partner in Invoice Finance Australia
ScotPac has been providing tailored Invoice Finance solutions for over 35 years. If late customer payments are holding your business back, you’d like to understand the difference between Invoice Factoring and Invoice Discounting, or you simply want to explore debtor finance for your Australian business – get in touch with our lending specialists today.