The concept of  a business using money owed by its customers to secure a loan has apparently been with us since the time of Cleopatra.

That shouldn’t be a surprise.  It’s a simple and straightforward idea that most semi-literate business owners in the year 20 BC would grasp.

Unfortunately, two thousand or so years later, we’ve confused it with such an astounding layer of jargon and complexity you can do your head in trying to understand what it is all about .

Google Search

Don’t believe me.?

Google the term “debtor and invoice finance”.

Or,  debt factoring..

Hold on,  try accounts receivable finance.  Or maybe, invoice discounting and cash flow finance.  What about selective invoice funding…or factoring invoices…or working capital finance…. etc. etc. etc….!

See what I mean?

Brain Injury

This simple concept has more euphemisms than the act of making love: It has more identities and disguises than a convention of con artists.

Trying to sort through them will only make your brain hurt.

The only thing that consumers need to understand is that all these terms represent the same idea. A business can raise funds by using money owed by its customers for security.

While the concept is fairly simple,  it’s how an invoice finance provider performs that makes the difference.

1. Factoring

A factoring company will tell your customers about its arrangements with you and have them agree to make payments into its account.  The factor will have oversight of your sales accounting process and will chase late payments.  It’s a bit like outsourcing your accounts receivable department.  It works if you are a small company focused on increasing sales rather than admin.  About 8% of all invoice finance transactions in Australia involve factoring.

2.Invoice Discounting

An invoice discounter generally won’t tell your customers about the arrangement. You will retain responsibility for the sales accounting process as well as collecting late payments.  Like factoring this is an ongoing facility usually involving a term of at least 12 months in which you have to assign ownership of every invoice you issue to the discounter.

Invoice discounting is best suited to a large company  with a high and stable turnover and lots of customers.  About 80% of all invoice finance transaction involve invoice discounting.

3. Selective Factoring (Single Invoice Finance)

This facility is best suited for businesses with short term requirements.  Rather than assigning all receivables to a financier for an extended period, you can raise funds by selling just one or two invoices to meet your immediate needs.  When the invoices are paid you can move on without further obligation to the finance company.

This facility is ideal for new or younger companies lacking the support of traditional lenders.  It is a relatively quick and easy way to raise funds to grab an opportunity, or simply to pay an unexpected bill.  Your customers will know about it.  They will be asked to confirm that the service which you provide has been received and that payment will be made into the financier’s account on a given date.


Everything else is a variation on a theme.  Some invoice discounters will also provide selective factoring.  Some factors will offer invoice discounting depending on the nature of the business looking for money.  A recent development is for a financier to pay an invoice in full and have the debtor repay the amount in installments.

Bare Essentials

So, there you have it.  Debtor and Invoice finance etc. etc. stripped to the bare essentials, so to speak, and demonstrating my point that the simple concept which made life so much easier for business owners in 20 BC continues to do the same today.