Invoice Factoring NZ: How It Works, Costs, and a Simpler Alternative

If your business waits 30, 60, or 90 days to get paid, you have probably looked into invoice factoring. It is one of the oldest ways to unlock the cash tied up in unpaid invoices. This guide explains how invoice factoring works in New Zealand, what it typically costs, and how it compares to the invoice financing model Fee Funders uses.

What is invoice factoring?

Invoice factoring is an arrangement where you sell your unpaid invoices to a factoring company at a discount. The factor advances you most of the invoice value straight away, then collects the full amount from your client and pays you the balance, less their fee, once the client settles.

The defining feature of factoring is that the factor takes over collection of the invoice. Your client pays the factor directly, and they usually know a third party is involved.

How invoice factoring works, step by step

1. You complete work for a client and issue an invoice as normal.
2. You sell that invoice to a factoring company.
3. The factor advances you a percentage of the invoice value, commonly 80 to 90 percent.
4. The factor collects payment directly from your client.
5. Once your client pays, the factor releases the remaining balance to you, minus their fees.

What does invoice factoring cost in New Zealand?

Factoring costs usually come in two parts:

• A discount or service fee: a percentage of each invoice you factor, often somewhere between 1 and 5 percent depending on volume, risk, and term.
• A facility or admin fee: ongoing charges for running the facility, which can include monthly minimums.

There are two broad types to be aware of. Recourse factoring is cheaper, but if your client never pays, you have to buy the invoice back. Non-recourse factoring costs more because the factor carries the bad-debt risk. Always check how recourse is handled before you sign.

Invoice factoring vs invoice financing

These terms are often used interchangeably, but they are not the same thing. With traditional factoring, the business pays the fee and the factor chases the client. With the invoice financing model Fee Funders uses, the cost sits with the client who chooses to pay in instalments, and your business receives the full invoice value at no cost. We cover this in detail in our guide to invoice financing vs invoice factoring.

Who uses invoice factoring?

Factoring is common in industries with large commercial invoices and long payment terms, such as freight, manufacturing, recruitment, and wholesale. It works well when you are comfortable with the factor managing collections and when the discount on each invoice still leaves a healthy margin.

A simpler alternative for service businesses

Many New Zealand service businesses do not want a third party chasing their clients, and they do not want to give up a slice of every invoice. The Fee Funders model is built for them:

• You receive 100 percent of the invoice value, not 80 to 90 percent.
• Your business pays nothing. The client covers the financing cost when they choose to spread the payment.
• Your client relationship stays intact, because it is presented as a payment plan rather than a debt sale.
• You carry no repayment risk once you are paid.

Your business is paid the full invoice once the client's first instalment clears, typically within 7 to 10 days of approval.

Which is right for you?

If you run high-volume commercial billing and are happy with a factor managing collections, traditional factoring may suit. If you are a service business that wants the full invoice value, no cost to your business, and full control of your client relationships, invoice financing is usually the better fit. Learn more on our invoice financing page or read our loan information.