Invoice Financing vs Invoice Factoring: Which Is Right for NZ Businesses?

If you have been looking into ways to improve your business cash flow, you have probably come across both "invoice financing" and "invoice factoring." While these terms are often used interchangeably, they are quite different in practice. Understanding the distinction can help you choose the right solution for your business.

What Is Invoice Factoring?

Invoice factoring is a financial arrangement where you sell your unpaid invoices to a factoring company. The key characteristics of traditional factoring are:

• Advance rate: You typically receive 80-90% of the invoice value upfront
• Remainder: The balance (minus fees) is paid when your client settles the invoice
• Collections: The factor contacts your client directly to collect payment
• Client awareness: Your client knows you have sold the invoice to a third party
• Control: The factoring company manages the relationship with your client regarding payment

What Is Invoice Financing (the Fee Funders Model)?

Invoice financing, as offered by Fee Funders, works differently:

• Advance rate: You receive 100% of the invoice value upfront
• Repayment: Your client repays in structured monthly instalments
• Client experience: It is positioned as a payment plan benefit, not a debt collection arrangement
• Relationship: Your client relationship remains positive and professional
• Risk: Fee Funders assumes the repayment risk, not your business

Key Differences at a Glance

Here is how the two models compare on the factors that matter most:

How Much You Receive

Invoice Factoring: 80-90% upfront, remainder later (minus fees)

Invoice Financing (Fee Funders): 100% upfront, no holdback

How Your Client Pays

Invoice Factoring: The factor chases your client for full payment

Invoice Financing (Fee Funders): Your client pays in manageable monthly instalments

Client Relationship Impact

Invoice Factoring: Can feel intrusive; clients may feel uncomfortable being contacted by a third party

Invoice Financing (Fee Funders): Positioned as a service benefit; clients appreciate the flexibility

Who Bears the Risk

Invoice Factoring: Some factors offer recourse, meaning you may still be liable if the client does not pay

Invoice Financing (Fee Funders): Fee Funders assumes the risk of non-payment

Fees and Costs

Invoice Factoring: Fees are typically deducted from your payment

Invoice Financing (Fee Funders): The client pays the financing costs as part of their instalment plan

Which Is Right for Your Business?

Invoice factoring may suit businesses that deal with large commercial invoices and do not mind the factoring company managing collections. It is common in industries like freight, manufacturing, and wholesale.

Invoice financing through Fee Funders is ideal for service-based businesses that want to:

• Receive 100% of their invoice value upfront
• Offer payment plans as a genuine client benefit
• Maintain full control of client relationships
• Avoid the stigma sometimes associated with factoring
• Carry zero risk on client repayments

Learn More

If you would like to explore how invoice financing can work for your business, visit our loan information page or get in touch with the Fee Funders team for a no-obligation conversation.