What is invoice financing and how does it work?

Discover the new way small businesses are managing the gap between issuing invoices and receiving payment, and jumping on opportunities that come their way.

Are you counting down the days until an invoice is due from the moment you hit send? Does the thought of a 30-, 60- or even 90-day payment period fill you with dread – leaving you wondering how you’ll stretch your finances to cover bills and expenses until then? Invoice financing could help you out of the pressure cooker, giving you access to unlock the cash you’re owed.

Read on to learn about the different types of invoice financing and how to make it work for you and your business.

What is invoice financing?

Invoice finance gives businesses access to the value of invoices that have been issued to customers, but not yet paid. There are several types of invoice finance on the market – including invoice factoring and invoice discounting.

Invoice factoring

Invoice factoring is when your unpaid invoices are on-sold to a third party, which then takes responsibility for collecting the outstanding funds. You might choose to use invoice factoring if you want to outsource your debt collection, while obtaining immediate funding for the unpaid invoices. You’ll likely sacrifice a percentage of the invoice as payment to the factoring company. You’ll also lose control of the customer relationship at this point, with the third party chasing your customers to pay.

Invoice discounting

While invoice discounting is similar, you are still responsible for collecting the accounts receivables, while the lending institution provides funding based on the unpaid invoices you submit to them, less a lending fee. Many invoice discounters will require you submit your entire receivables ledger as collateral so they can assess the creditworthiness of your clients.

Compare the two types of invoice financing

While both of these types of invoice finance have their benefits – they tend to be expensive and may take time to be assessed and approved. However, there is a new option available for businesses seeking to use their accounts receivable to access more funds.

A new approach to invoice finance

CommBank’s Stream Working Capital is a new type of invoicing financing, that acts as a secured business overdraft.

By connecting directly to your accounting software, Stream Working Capital provides access to finance as soon as you nominate customers’ invoices, which means funds are available 24/7.

To qualify, you need a minimum of $15,000 a month in unpaid invoices. CommBank will then provide finance for up to 80% of the value of your customers’ invoices. The amount of funding available is calculated in real-time as invoices are added to your system, and the loan balance outstanding is adjusted as your customers settle invoices by paying into your Stream Working Capital Transaction Account.1

One of the great advantages of Stream Working Capital is that it scales to meet your unpaid accounts receivables. As you add more invoices, available funding increases instantly too so you don’t need to keep applying for finance. And unlike a business loan, you only pay interest on the funds you draw down. You don’t have to worry about long waiting periods for approval either, and you don’t need to provide property or equipment as security because the invoices act as security.1

CommBank’s Stream Working Capital makes managing your cash flow simpler, more accessible and streamlined. Because it integrates directly with your business banking and accounting software you can worry less about administration and concentrate on the day-to-day running and growth of your business.1

Flexible business financing solutions 

Stream Working Capital unlocks the value of your funds tied up in unpaid invoices to help with your cash flow.

Things you should know

  • This article is intended to provide general information of an educational nature only and is prepared without taking into account your individual and/or business needs and objectives. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this, consider the appropriateness to your circumstances. Examples used in this article are for illustrative purposes only.

    1Credit provided by the Commonwealth Bank of Australia. This product is only available to approved business customers and for business purposes only. Applications for finance are subject to the Bank’s eligibility and suitability criteria and normal credit approval processes. The minimum value of nominated invoices is $15,000 per month. A minimum facility limit of $50,000 or more applies to Stream Working Capital. We will require your consent to access your accounting software to assess your application and manage your account going forward. Full terms and conditions, interest rate, establishment fee and line fee are included in the Loan Offer, you should consider these before making any decisions about these products. Bank fees and charges may apply. To use Stream Working Capital you'll need to open or switch to a Stream Working Capital Transaction Account if your application is approved. Fees and charges for this account are in addition to those associated with any existing business transaction product. For the Stream Working Capital Transaction Account view our CommBank Business Savings and Transaction Accounts Terms and Conditions, Financial Services Guide (PDF), the Electronic Banking Terms and Conditions (PDF) and the Target Market Determination, you should consider these before making any decisions about these products. Bank fees and charges may apply. View our current interest rates

    Commonwealth Bank of Australia ABN 48 123 123 124 and Australian credit licence 234945.