Invoice Finance can be an invaluable form of business finance for small and medium-sized enterprises (SMEs) across New Zealand.

However, while a powerful tool for improving business cash flow, managing gaps in working capital and financing ongoing operations, it is important to understand Invoice Financing costs.

In this guide, we will outline the typical industry pricing involved in Invoice Finance to help you better make the right choice for your business needs.

What are the Typical Invoice Financing Costs in New Zealand?

The industry-standard for Invoice Financing fees in New Zealand usually fall within 1.5% to 5% per month of the invoice or invoices’ value.

In other words, the invoices you submit for financing will determine the cost of your access to the funding facility.

Of course, 1.5% to 5% is still a significant range. The exact rate of your Invoice Finance facility, as determined by your provider, will reflect your business’s risk assessment, the size of your applied for facility, and the profile of the industry in which you operate. As Invoice Finance is also affected by the reliability and punctuality of your customers or clients, the risk assessment of the businesses to whom you’ve issued invoices and subsequently used those unpaid invoices to receive an advance as part of your facility, may also affect the rate and costs.

Invoicing Financing Costs Example

In this example, let’s say that your business funds $100,000 worth of invoices. A 3% rate will cost you $3,000 and a 5% rate will cost you $5,000.

Compared to traditional business loans and some other forms of business finance, Invoice Finance can be more cost effective as the costs are flexible and scale directly with your sales. Similarly, you only pay for the value of the invoices you fund.

What are the factors that influence Invoice Financing costs?

The team here at ScotPac always recommend you seek professional, custom advice from our lending specialist to understand the costs of a potential Invoice Finance facility. Nevertheless, to help you understand the different Invoice Financing costs, here is a breakdown of the main factors that can impact the end amount.

1. Invoice Turnover

As outlined above, the cost of Invoice Finance as a dollar figure will vary depending on the value of the invoices submitted for financing. Some providers will offer lower fees for a steady number of large invoices. For example, if you are a wholesale business submitting a consistent $50,000 worth of invoices each month, you may be eligible to secure a 1.5-2% rate whereas a smaller business submitting lower amounts or varying amounts month-to-month may be offered a rate of 4% or similar.

2. Industry Risk

When it comes to Invoice Finance not all industries are equal. The construction industry, for example, is known for having slower paying customers. To reduce the risk for the lender, your Invoice Financing costs may be higher to compensate. On the other hand, in the manufacturing industry for a government contract, by way of example, the reliability of payment may help you secure a lower rate.

3. Customer/Client Risk

Again, as outlined above, the risk profile of your customers or clients can also make a difference. Outstanding invoices from large corporations or, as in the example above, from the government are more reliable and less risky. Thus, the Invoice Financing costs are expected to be lower than if your outstanding invoices are from smaller, less well known customers or clients.

4. Facility Terms

There are ‘internal’ factors as well that can affect your costs. In general, facility scale and duration make a difference. As a general rule, the larger the value of your invoices submitted for financing (see above) and the longer term over which you use the Invoice Financing facility, the lower rate you will get. This is simply a factor of the loan provider being able to manage their risk and revenue accordingly. An annual facility of $1 million will incur lower costs than ad-hoc spot factoring.

5. Type of Invoice Finance Facility

There are a number of different types of facilities. For example, Invoice Factoring with the full service of your loan provider collecting the outstanding payments will incur a higher cost. Invoice Discounting, in which your business continues to be responsible for managing debt collection, will likely have lower costs.

What are the hidden Invoice Financing costs to watch out for?

At ScotPac, we ensure that there are no hidden costs in our financial solutions. We believe transparency and communication matters, and we work with our clients as partners to ensure they are best set up for success.

If you are comparing different finance providers, it is important however that you look up for some of the less-advertised Invoice Financing costs.

Setup fees

Some financial institutions will charge a one-time establishment fee to get the facility set up. Whilst this can be as ‘low’ as $500-$1,000 it may come as a surprise to some borrowers.

Review fees

Review fees, sometimes called audit fees, can be charged periodically to compensate for your provider reviewing your ledger. While the amount varies, it can be somewhere around the $200-$500 mark.

Excess usage fee

In some instances, exceeding the approved limit of your facility may attract an additional charge called an excess usage fee. This can be between 1% and 2% of the extra amount borrowed.

Early termination fee

If you close your Invoice Finance facility earlier than the agreed-to term, there may be a fee. Some finance providers charge the equivalent of one or more months’ fees for early termination.

Is Invoice Financing worth the costs?

Invoice Finance can be an invaluable finance solution to fuel your business’s growth. While there are costs involved, as with every financial facility, it is important to consider the benefits of Invoice Finance and determine if it is right for your business and your needs.

Improved cash flow

If your business is waiting on a significant payment, such as $150,000 worth of invoices, you may not have the cash flow to pay your own debts, re-stock your inventory, meet payroll and keep the lights on. Immediate access to the money owed to you can help you grow your business and more than make up for the Invoice Financing costs.

Reduce bad debt risk

Invoice Finance can help you avoid having to take on debt risk through other forms of finance, such as business loans. The cost of Invoice Finance can be competitive in their own right, but the value of this customisable facility is often more than just in the numbers.

Scalable cash flow

Invoice Finance is unique in that the more invoices you issue and finance the more funding you can access. This means that the costs of Invoice Finance are always tethered to the amount of funding you seek and are therefore in your control and manageable.

Market opportunities

For many businesses, particularly SMEs, having the funding to take advantage of market opportunities is well worth the short term costs. This may be in the form of expansion and growth into new markets or new product/service lines, or it might simply come in the form of accessing supplier discounts through bulk purchases or early orders. This can help you negotiate better rates with your own suppliers and often offset the Invoice Financing costs in the first place.

Explore your personalised Invoice Finance quote with ScotPac

Every business in New Zealand is unique, and therefore your Invoice Finance facility should be equally customised.

ScotPac has been providing tailored Invoice Finance and business finance solutions for over 35 years, and as the largest non-bank finance provider we currently support over 9,300 businesses and fund $26.3 billion each year.

So, if you are looking for a real partner in success to help you understand the potential Invoice Financing costs and benefits to your business, make sure to reach out to the ScotPac team today. Give us a call on 0800 700 032.