01
Who currently chases invoices
If the honest answer is nobody in particular, factoring is buying something real. If a capable person does it well, factoring is paying for work already done.
Guide
Three names, two real differences.
Invoice finance, factoring and debtor finance are used interchangeably in the market and are not the same thing. Two questions separate them, and everything else follows from those two.
MS
Matt Stiles Editor
Published 8 September 2026 Last reviewed 8 September 2026 Read time 11 min
The short version
Five lines that settle most of it.
- Disclosure is the first fork. Factoring tells the customer. Confidential invoice finance and most debtor finance do not, and the customer sees nothing different.
- Collections are the second. Under factoring the funder chases. Under the other two the business does, which is either a saving or a burden depending on the business.
- Scope is the third and smaller one. Invoice finance can be selective. Factoring and debtor finance are ordinarily whole-of-ledger.
- Price follows the service. Factoring costs more because it includes collections. Comparing it on rate alone will always make it look worse than it is.
- Indicative only. Every figure here is illustrative. Actual terms come from the funder after assessment.
The three, separated
What actually differs.
The rows are ordered by how much they matter. The first two decide nearly every case.
| Feature | Confidential invoice finance | Factoring | Debtor finance |
|---|---|---|---|
| Customer is notified | No | Yes | Ordinarily no |
| Who collects | The business | The funder | The business |
| Scope | Selective or whole ledger | Whole ledger | Whole ledger |
| Limit set by | Per invoice | A borrowing base | A borrowing base |
| Relative cost | Middle | Highest, service included | Lowest per dollar |
| Reporting burden | Moderate | Moderate | Highest |
| Best for | Flexibility | No credit control function | A large growing ledger |
Providers use these three names loosely, so the reliable approach is to ignore the label and ask the two questions directly: will my customers be told, and who chases the payment.
The first question
Whether the customer is told.
A disclosed arrangement puts a notice of assignment on the invoice directing the customer to pay the funder. A confidential one does not, and the customer continues to pay into an account in the business’s name, with the funder’s involvement invisible to them.
The objection to disclosure is that it signals a business needing money, and how much weight that carries depends almost entirely on the sector. In construction, transport, labour hire and recruitment it is common enough to be unremarkable. In sectors where it is uncommon, it stands out and is worth weighing seriously.
The counterweight is that confidentiality has a price. A funder that cannot verify payment directly with the customer is taking more risk and charges accordingly, and it also has to satisfy itself about the ledger in other ways, which shows up as reporting. Confidentiality is worth having and it is not free.
The second question
Who does the chasing, and what that is worth.
Under factoring the funder collects. Statements, reminders and follow-up calls come from it, and the credit control function leaves the business along with the cost of doing it and the discomfort of a small supplier pressing a large customer.
That is worth real money in a business that has nobody doing it properly. Where invoices are chased by whoever has time, collections drift, and a party that follows a process regardless of how anyone feels about it frequently collects faster. The improvement in days is part of what the fee buys.
It is worth much less in a business with a capable finance function already collecting on time. There the higher fee is buying work that is already being done well, and confidential invoice finance is the better trade.
The question is not which arrangement is better. It is whether the business currently collects well, and the honest answer is available from its own aged receivables report.
Worked example
The same $200,000 ledger, three ways.
A business with a $200,000 monthly ledger on 45-day terms is quoted all three. Confidential invoice finance at 1.1% per 30 days on the advance plus 0.35% service. Factoring at 1.3% plus 0.8% service, collections included. Debtor finance at 0.95% plus 0.3%, with monthly borrowing base reporting.
On an 80% advance the drawn balance averages around $160,000. Across a year the indicative costs are roughly $30,000 for invoice finance, $40,000 for factoring and $26,000 for debtor finance, before any set-up or audit fees.
The $10,000 gap between invoice finance and factoring is the collections function, and the question is whether the business would spend more than that doing it itself. Where a part-time administrator spends half their time chasing and collections still run at 55 days, the answer is frequently yes. The $4,000 gap down to debtor finance is paid for in reporting effort rather than in cash, which is a different currency and not a free one.
Illustrative annual cost
- Confidential invoice finance
- ~$30,000
- Factoring, collections included
- ~$40,000
- Debtor finance
- ~$26,000
- Average drawn balance
- ~$160,000
Illustrative on stated assumptions and rounded, before set-up and audit fees. Not a quote or offer of credit.
Choosing
Four questions that decide it in practice.
02
What the sector expects
Notices of assignment are routine in some New Zealand sectors and conspicuous in others. What the business’s own customers are used to seeing is the question, and anyone experienced in that sector can answer it.
03
How large and how spread the ledger is
A large ledger across many customers suits debtor finance and justifies its reporting. A smaller or concentrated one is better served by selective invoice funding.
04
Whether the finance function can report
Debtor finance requires an accurate aged receivables report on a schedule. A business that cannot reliably produce one will find the facility unreliable regardless of its price.
The practical advice
Ignore the label and ask the two questions.
Providers apply these three names inconsistently, and a proposal titled invoice finance may well be disclosed while one titled debtor finance may be selective. Asking directly whether customers will be notified and who will be chasing payment produces an unambiguous answer in one sentence, and it is the answer that determines what the arrangement will actually be like to live with.
The honest summary
Where each one genuinely wins.
Reasons to choose factoring
- No credit control function in the business, or one that is not working
- A sector where notices of assignment are ordinary
- An owner spending significant time chasing payment
- Rapid growth in headcount, where collections would otherwise be neglected
- A preference for one arrangement covering both funding and collections
Reasons to choose a confidential facility
- A capable finance function already collecting on time
- A sector where disclosure would be conspicuous
- Customer relationships the business wants to keep entirely direct
- A need for selective funding rather than a whole-of-ledger commitment
- A ledger large and clean enough to support debtor finance pricing
What is common to all three
The things that do not change with the label.
All three ordinarily involve a general security agreement over the business, registered on the Personal Property Securities Register. Where another lender already holds a general security, that position has to be resolved before any of them can start, and it is worth checking early rather than late.
All three are ordinarily with recourse, which means an invoice unpaid past an agreed period is recharged to the business. Non-recourse arrangements exist across all three, cost more, and cover what the agreement says rather than what the word implies.
And all three apply concentration limits. A ledger dominated by one customer produces a smaller usable facility than its headline under any of the three, which is a property of receivables funding rather than of any particular version of it.
Method
How this guide was written, and its limits.
The figures throughout are illustrative and calculated on stated assumptions rather than drawn from any particular funder’s pricing. Advance rates, fees, eligibility rules and concentration caps vary considerably, and the only figures that matter to a business are the ones a funder puts in writing after assessment.
Nothing here is financial advice. This site is not a lender, a broker or a registered financial adviser, and whether any of these arrangements suits a particular business depends on facts a website cannot see.
Setting one up
What the three arrangements ask for.
The sequence is similar and the weight differs. Debtor finance is the most demanding, factoring sits in the middle, and selective invoice finance is the lightest.
01
The ledger
A current aged receivables report for all three, plus historic reports for debtor finance so the funder can see how the ledger behaves rather than how it looks today. Customer concentration and the ageing profile are read here, and they set the usable limit more than anything else in the file.
Documents commonly required
- Aged receivables report
- Customer list
- Historic reports for debtor finance
02
The business
Entity details, bank statements, financial statements where held, and a complete schedule of existing facilities. An existing general security agreement held by another lender has to be resolved before any of the three can start, and it is worth raising at this point rather than discovering it later.
Documents commonly required
- Entity and director details
- Bank statements
- Existing facility schedule
03
Verification
Sample invoice checks in every case. Under factoring this is straightforward because the funder can contact customers directly. Under a confidential arrangement it is done through documents, and under debtor finance it extends to a review of the systems producing the ledger.
04
Documents and first draw
Facility agreement, security documents, and for factoring the notice of assignment wording. The reporting schedule is agreed here for debtor finance, and it is a real operational commitment rather than an administrative detail.
Documents commonly required
- Facility agreement
- Security documents
- Reporting schedule
Switching
Moving between the three, and what it costs.
Businesses do move between these arrangements, most commonly from selective invoice finance into a whole-of-ledger facility as they grow, or out of factoring into a confidential arrangement once a finance function is in place. Both are ordinary and both have costs that are easy to overlook at the point of signing the first one.
The visible cost is in the agreement: a minimum term, a notice period, a termination fee, or a minimum service fee that continues to apply while notice runs. Those are worth reading before the entry terms are agreed rather than at the point of leaving.
The less visible cost is customer-facing and applies only when leaving factoring. Customers have been told to pay the factor, and reverting means telling them again, which is a more conspicuous conversation than the first one. A business that expects to move within a year is frequently better served by starting confidential even at a higher price.
The recurring question
Whether a facility can sit alongside an existing bank line.
Frequently yes, and it takes agreement between the two lenders rather than the business alone. Where a bank holds a general security agreement over the business, a receivables funder will ordinarily want a first-ranking position over the receivables specifically, and the two are resolved through a deed between them.
That is a routine arrangement and it takes time, which is the practical consequence. A business planning around a facility starting on a particular date and discovering the deed at the last minute has lost weeks that were entirely foreseeable.
The step that avoids it is a search of the register at the outset and a conversation with the existing lender early. Both take minutes, and the alternative is discovering the position at the point everything else is ready.
A note on scale
Ledger size decides more of this than anything else.
Below a certain ledger size the reporting and audit overhead of debtor finance stops being worth the lower rate, and selective invoice funding does the same job with a fraction of the administration. Where that line falls depends on the funder and on how capable the finance function is, and it is worth asking directly rather than assuming the cheapest headline is the cheapest facility.
Above it the position reverses. A large ledger funded invoice by invoice is paying a premium for flexibility it no longer needs, and moving to a whole-of-ledger facility ordinarily reduces the cost per dollar meaningfully.
The other scale factor is the finance function. Debtor finance depends on an accurate aged receivables report produced on a schedule, and a business that cannot reliably do that will find the facility unreliable at exactly the moments it matters most, whatever the pricing looked like at the outset.
Getting a like-for-like quote
Asking three funders the same question.
Because these three products are named inconsistently, quotes arrive describing different arrangements even when the same brief was given. The fix is to specify the arrangement rather than the product name: state the invoice volume, the average collection period, whether disclosure is acceptable, and whether the whole ledger or selected invoices are on offer.
With those four facts stated, a funder quoting factoring and a funder quoting confidential invoice finance are at least answering the same question, and the difference between their totals is the price of disclosure and collections rather than an artefact of what each assumed.
The final step is asking every one of them for the twelve-month total in dollars on those figures. Three totals and three descriptions of the arrangement is a comparison. Three rates is not.
The funding cost
What a drawn balance costs to carry.
All three charge on what is drawn, so this shows the interest cost of an average drawn balance. The service fee, which is where they differ most, sits on top of it. Indicative only, and not a quote or offer of credit.
Indicative interest cost
Weekly
$269/week
$1,167 /month $14,000 a year while drawn
$200,000
$5,000 $500,000
$100,000
Nothing drawn Fully drawn
14.00% p.a.
8% (secured) 30% (unsecured)
Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.
Sending to Prospa
Your $200,000 scenario
$100,000 drawn at 14.00% . Prospa will ask a few quick questions, then provide a firm quote and funding if eligible.
Redirecting…
References
Sources
- Personal Property Securities Register
Backs the description of the general security registration all three arrangements ordinarily involve.
- Companies Office
The register used to confirm the entities involved in an assignment.
- Commerce Commission
The regulator whose guidance covers conduct and fee disclosure.
- Ministry of Business, Innovation and Employment
Context for the wider regulatory framework covering business-to-business credit.
- Financial Markets Authority, financial advice
Backs the distinction between general information of this kind and regulated financial advice.
FAQ
Questions, answered
What is the difference between invoice finance and factoring?
Disclosure and collections. Factoring notifies the customer and the funder collects. Confidential invoice finance leaves both with the business, so the customer sees nothing different and the business keeps chasing its own invoices.
Where does debtor finance fit?
It is a whole-of-ledger facility, ordinarily confidential, sized on a borrowing base recalculated as the ledger moves. It is generally the cheapest per dollar and carries the heaviest reporting requirement of the three.
Why does factoring cost more?
Because it includes a service as well as funding. The higher service fee is buying collections, and comparing it against a funding-only facility on rate alone will always make it look worse than it is.
Is disclosure really a problem?
It depends on the sector. In construction, transport, labour hire and recruitment, notices of assignment are common and carry little signal. In sectors where they are rare, they are conspicuous and worth weighing.
Can invoices be funded selectively?
Under invoice finance, frequently. Factoring and debtor finance are ordinarily whole-of-ledger, because the collections function and the borrowing base both work across the book rather than invoice by invoice.
Which is cheapest?
Per dollar, debtor finance ordinarily, then confidential invoice finance, then factoring. Once the reporting effort and the value of collections are counted, the ranking changes for many businesses, which is why cost alone is the wrong basis to decide on.
Do all three take security?
Ordinarily yes, a general security agreement over the business registered on the Personal Property Securities Register. An existing general security held by another lender has to be resolved first.
What is recourse?
The funder’s right to recharge an unpaid invoice to the business after an agreed period. Most New Zealand arrangements across all three are with recourse, and non-recourse versions cost more and cover what the agreement says.
How do concentration limits work?
Funders cap how much of a single customer they will fund, so a ledger dominated by one account produces a smaller usable facility than its headline. That applies under all three labels rather than to any one of them.
How do I tell which one a provider is actually offering?
By asking whether customers will be notified and who will chase payment. Those two answers describe the arrangement more reliably than the name on the proposal, which is used inconsistently across the market.
Can a business switch between them?
Yes, and switching from factoring to a confidential facility is more visible than the reverse, because customers have already been notified. The exit terms of the existing arrangement are worth reading before the new one is agreed.
Is this guide financial advice?
No. It compares three products in general terms. This site is not a lender, a broker or a registered financial adviser, and which suits a particular business depends on facts a website cannot see.
Related
Keep reading
Invoice finance
The confidential, frequently selective option.
Read onInvoice factoring
The disclosed option with collections included.
Read onDebtor finance
The whole-of-ledger facility with a moving limit.
Read onDisclosed against confidential
The first question, examined on its own.
Read onWhat invoice finance actually costs
The fee structures, converted into one number.
Read on