What is invoice finance?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Invoice finance is funding based on invoices a business has sent to customers but has not yet been paid for. It can include borrowing against those invoices or selling them through factoring. The borrowing arrangement described below keeps the invoices with the business, while a lender advances money against them.
In the borrowing arrangement described here, the business keeps its invoices and usually continues to record them in accounts receivable. Customers' payments are matched to those invoices, while the lender's advance is usually tracked separately as a liability. Your accountant can confirm the treatment of the particular agreement.
Interest and fees charged by the lender are costs of borrowing, recorded as expenses from the lender's statements. Reconciling the finance account with those statements each month shows how much is still owed to the lender, separately from how much customers still owe the business. How a particular arrangement is recorded depends on its terms, which is a question for your accountant.
In Australia
business.gov.au's business loan guide describes invoice finance as a way to borrow using invoices you have issued that customers have not yet paid, which can help manage cash flow until they do. Its glossary describes it as finance that rests on how strong a business's accounts receivable are.
business.gov.au relates it to factoring in two different ways. Its glossary compares it to factoring, the difference being that the business keeps its invoices. Its loan guide presents invoice factoring as one form of invoice finance, where the unpaid invoices are sold to another business for less than their face value and that buyer takes on chasing the debt.
Its funding guide names invoice financing as one of the finance products available from banks and other financial institutions.
Worked example
| Event | Accounts receivable | Invoice finance account (owed to the lender) |
|---|---|---|
| Invoices issued to customers | Increases | No change |
| Lender advances money against those invoices | No change | Increases |
| A customer pays an invoice | Decreases | No change |
| The business repays the lender | No change | Decreases |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Recording the money advanced by the lender as customer payments, which clears invoices that customers have not actually paid.
- Recording the advance as sales income, which counts the same sales twice.
- Reconciling the bank account but not the finance account, so the amount owed to the lender is never checked.
Related terms
Related service
Accounts payable and receivable
Bills and invoices tracked, with you approving every payment.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Apply for a business loan
business.gov.au, Australian Government. Current at 16 October 2026, released 18 February 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Choose your funding
business.gov.au, Australian Government. Current at 16 October 2026, released 18 February 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.