Quick answer
Debtor finance is a business funding facility that advances cash against your outstanding invoices, so you do not wait 30, 60 or 90 days to be paid. The lender usually takes security over the debtor ledger, and the facility grows as sales grow. Ownright Custom Finance arranges debtor finance Australia-wide, including for businesses with tax debts or patchy credit.
Key points
- Cash is advanced against invoices you have already raised to business customers
- The facility usually moves with sales, so it can scale as you grow
- Can be confidential, where customers are unaware, or disclosed
- Often suits businesses that trade on 30 to 90 day terms
- Suits
- Businesses selling to other businesses or government on credit terms
- Security
- The debtor ledger, often with a general security agreement
- Structures
- Whole-ledger facility, with or without collections by the lender
- Australia-wide
- Yes
What is debtor finance?
Debtor finance is a funding facility built on your accounts receivable, the money customers owe you for work already done or goods already delivered. Rather than waiting for those invoices to be paid, you receive a large share of their value up front, then the balance, less fees, when the customer pays.
The “debtors” in the name are your customers. The ledger of what they owe becomes the asset that supports the facility. As sales rise, the ledger rises and so does the funding available. As sales dip, the facility shrinks, which can be a good fit for businesses with changing volumes.
How does debtor finance work?
- You supply goods or services and issue an invoice on credit terms.
- You tell the provider about the invoice, usually through a portal or regular ledger report.
- The provider advances a percentage of the invoice value.
- Your customer pays, either to you or to a collection account depending on the facility.
- The provider releases the remainder, less its charges.
The advance rate, fee structure and reporting vary between providers and are set on your circumstances. That is one reason to compare structures rather than headline figures.
Who suits debtor finance?
- Wholesalers and distributors extending credit to retailers
- Labour hire and recruitment firms paying wages weekly but invoicing monthly
- Transport and logistics operators awaiting freight payments
- Manufacturers supplying larger customers on long terms
- Contractors and subcontractors billing builders or government
- Growing businesses whose sales are outpacing available cash
If you sell to the public at the till, it is probably not the right tool. If your invoices sit unpaid for weeks, it often is.
Confidential versus disclosed facilities
| Feature | Confidential | Disclosed |
|---|---|---|
| Customers told | No | Yes |
| Who collects | You, into a controlled account | The provider |
| Control of customer relationship | Stays with you | Shared |
| Typical suitability | Established businesses with sound processes | Newer or higher-risk ledgers |
Confidential facilities may be appealing when you do not want customers to know about your funding. Disclosed facilities can feel more intrusive but sometimes make approval easier. We explain both, and the related invoice factoring page goes deeper on collection-led arrangements.
Whole-ledger or selective?
A whole-ledger facility covers all, or most, of your eligible invoices. That keeps administration simple and can reduce the cost per invoice. A selective facility lets you choose individual invoices to finance when you need cash, which is covered on our selective invoice finance page. Many businesses start selectively and move to a whole-ledger arrangement once they are comfortable.
What do providers look at?
Your customers. Who they are, how reliably they pay and whether any one customer represents too much of the ledger.
Your invoices. Are they for completed work or delivered goods? Are there disputes, credit notes or retentions?
Your business. Trading history, margins, any tax debts and how your processes work.
Security. Providers often register a security interest over the debtor ledger on the Personal Property Securities Register, and many take a general security agreement over wider assets. Our guide on general security agreements explains what this means in practice.
How Ownright arranges debtor finance
Trevor Scott and the team start with the aged debtors report. It tells us more about your cash flow than most financial statements. We look at who owes what, how long they take and where the pinch points are. Then we decide whether debtor finance is the best tool or whether a working capital loan, cash flow loan or something else suits better.
We also look for the lenders and providers that others overlook. If you have a tax debt, a concentrated customer base or a business that does not fit a standard industry code, we search for a provider whose policy fits. Ownright works Australia-wide, and we can explain the choices in plain English. The broader invoice finance page is a good overview.
An illustration
Illustrative scenario only. A small labour-hire business pays staff every week but invoices clients monthly, with payment two to three weeks after that. Growth is stretching the owner’s cash. A broker could arrange a confidential facility against the ledger so each week’s invoices release cash straight away, with the facility sized to grow as more placements are made.
Mistakes to avoid
- Financing invoices that are disputed or incomplete
- Relying on one customer for most of the ledger
- Ignoring the full cost of fees on top of the interest-style charge
- Signing a long lock-in without understanding the exit terms
- Using debtor finance to paper over a business that is not profitable
Documents to have ready
- Aged debtors report
- Recent financial statements, BAS and bank statements
- Sample invoices and customer terms
- Details of any ATO payment arrangement
- Asset and liability list
Our business loan documents checklist covers other items lenders commonly ask for, and how to get loan ready can help you organise them. If customers are paying late, see late paying customers finance for related options.
If you want to move quickly, send us your details through the application page or call 03 7043 7233.
What does debtor finance cost?
Costs generally come in two parts: an administration or service fee, often related to the size of your turnover or the invoices processed, and a charge on the money you actually draw. Some providers also charge set-up, audit or termination fees. We do not publish numbers because they depend on your industry, your customers, your volumes and your history. The sensible comparison is the total cost over a year for the pattern of use you expect, not a single headline figure. We help you ask for a full fee schedule and compare facilities on equal terms.
What is the difference between recourse and non-recourse?
In a recourse facility, if a customer fails to pay, you carry the loss and may need to repay or replace the advance. In a non-recourse facility, some of that risk moves to the provider, usually for a higher fee and subject to conditions, such as the customer being pre-approved. Non-recourse is not the same as being fully insured against bad debts, so read the definition in the contract carefully. It is also worth asking how disputed invoices and credit notes are handled.
How does debtor finance fit with other lenders?
If a bank already has a general security agreement over your business, a debtor finance provider will want to coordinate with it. Sometimes the bank agrees to carve out the receivables, sometimes it needs to be refinanced. This is a common stumbling block and a good reason to talk to a broker before approaching any provider.
Tired of waiting on invoices?
Sounds like you’re looking for debtor finance. We’re the lending experts in turning unpaid invoices into usable cash, so see if you qualify and we will find a facility that fits your ledger.
How it works, step by step
- 1
Step 1
Send us an aged debtors report and a short description of what you sell and to whom.
- 2
Step 2
We work out whether a whole-ledger facility, a selective one or something else fits.
- 3
Step 3
We approach providers who suit your industry, customer mix and credit history.
- 4
Step 4
The facility is set up and you draw cash as you invoice.
Frequently asked questions
What is the difference between debtor finance and a business loan?
A business loan gives you a lump sum to repay over a term. Debtor finance advances money against invoices you have already issued, and the facility rises and falls with sales. It is tied to your customers' ability to pay, not only to your own assets. It often suits growing businesses with long payment terms.
Will my customers know I am using debtor finance?
It depends on the facility. A confidential facility leaves collections with you, so customers continue paying you or a designated account. A disclosed facility involves the provider collecting directly. Each has implications for cost and control. We explain which suits your relationships and which lenders offer them.
What kind of businesses can use debtor finance?
Generally businesses that invoice other businesses or government, such as labour hire, transport, manufacturing, wholesale and professional services. Retail businesses selling to consumers on the spot usually cannot use it. Lenders look at who your customers are and how reliably they pay.
Do I need good credit?
Not necessarily perfect. Debtor finance leans heavily on the quality of your invoices and your customers' payment record. Some providers will consider businesses with tax debts or past credit issues if the ledger is strong. We discuss any credit concerns up front.
Are there fees besides interest?
Usually, yes. Facilities commonly involve a service or administration fee plus a charge on the funds you use. The details vary by provider and are set on your circumstances. We explain the structure of the charges so you can compare like with like.
What happens if a customer does not pay?
It depends on whether the facility is recourse or non-recourse. In a recourse facility you may need to repay or replace an unpaid invoice. Non-recourse arrangements can shift some of that risk to the provider but are less common and may cost more. Read the terms closely and we will go through them.