Working capital product

A limit that moves with the ledger , not with a review.

Debtor finance funds the whole receivables book as a revolving facility. The available limit is recalculated from the ledger rather than fixed at the start, which is what makes it behave differently from every other facility a business is offered.

Last reviewed 8 September 2026

Indicative interest cost

Weekly

Disclaimer

$500/week

$2,167 /month $26,000 a year while drawn

Facility limit $400,000

$5,000 $500,000

Average drawn balance $200,000

Nothing drawn Fully drawn

Indicative rate 13.00% p.a.

8% (secured) 30% (unsecured)

Apply directly with Prospa Why Prospa

Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.

The short version

Five lines that describe the mechanism.

The whole ledger is the security. Not selected invoices. The facility takes the receivables book and sizes against it, which is why it is generally the largest of the receivables facilities.
The borrowing base decides the limit. Ineligible debt is stripped out, a concentration cap is applied, and a percentage of what remains is available. That calculation is the facility.
The limit moves on its own. It grows when invoicing grows and shrinks when the ledger ages. Nothing has to be approved for either to happen, which cuts both ways.
Aged debt is the usual surprise. Invoices past an agreed age drop out of the base entirely, so a slow month can reduce the available limit at the point it is most needed.
Indicative only. Every figure here is illustrative. Actual advance rates, eligibility rules and terms come from the funder after assessment.

The mechanism

How a borrowing base is built.

The calculation starts with the total owed to the business and then removes everything the funder will not lend against. Invoices older than an agreed age come out. Debt owed by related parties comes out. Disputed invoices, credit notes and contra accounts come out. Debt owed by customers the funder will not take comes out.

What remains is then capped for concentration. Where one customer represents more of the ledger than the funder is comfortable with, the excess above that share is removed as well, which is the step that most often produces a smaller number than the business expected.

A percentage of the surviving figure is the available limit. Because every input moves as the business trades, the limit is recalculated continuously rather than set once. That is the defining property of the product, and it is the reason the facility feels different to operate from an overdraft.

Start with

Gross receivables

Remove

Ineligible debt

Cap

Concentration

Advance

A percentage of the rest

Worked base

A $600,000 ledger, reduced to an available limit.

Illustrative on stated assumptions. The sequence and the direction are what matter, since every funder sets its own eligibility rules.

Step	Adjustment	Running figure
Gross receivables		$600,000
Less invoices past 90 days	-$48,000	$552,000
Less related-party debt	-$22,000	$530,000
Less disputed and credited	-$15,000	$515,000
Less concentration above the cap	-$65,000	$450,000
Eligible receivables		$450,000
Advance at 80%		$360,000 available

Illustrative borrowing base on stated assumptions. Not an offer of credit.

Reading the table

A quarter of the ledger disappeared before any advance was made.

The example starts at $600,000 and ends with $360,000 available, which is well under the gross figure and well under the headline advance rate applied to it. Nothing improper happened. The advance rate applies to eligible receivables, and the eligibility rules removed a quarter of the book before the percentage was applied.

That gap is where most disappointment with this product lives. A business quoted an 80% advance against a $600,000 ledger reasonably expects something near $480,000, and the number that arrives is a third lower. The rules producing that were all in the agreement.

The practical response is to build the base before signing rather than after. Running the funder’s eligibility rules across the current aged receivables report takes an hour and produces the real number, and a funder will ordinarily help with it because the alternative is a facility neither party is happy with.

What moves the limit

Four things that change what is available, without anyone deciding.

Invoicing more

New invoices to approved customers add to the base immediately. This is the property that makes the facility suit a growing business, because funding scales with activity rather than with an annual review.

Customers paying

A payment reduces the ledger and therefore the base, at the same time as it puts cash in the account. The two offset, which is why the facility feels stable in normal trading.

Debt ageing

An invoice crossing the eligibility age drops out entirely. A month where several large invoices age at once can reduce the available limit noticeably, and it happens without warning unless the ledger is being watched.

Concentration shifting

Winning a large contract can push one customer above the concentration cap, which removes the excess from the base. Growth in the wrong shape can reduce the facility.

The one to watch

The limit falls fastest exactly when the business needs it most.

A month where customers pay slowly is a month where invoices age out of the base, which reduces the available limit while the cash shortfall is growing. That is the opposite of how a business intuitively expects a facility to behave, and it is inherent to sizing against a ledger rather than against a business. A weekly look at the aged receivables report against the eligibility rules turns that from a surprise into a forecast.

Against the alternatives

Where debtor finance sits.

All three are receivables facilities. They differ on scope, on who collects and on how the limit is set.

Feature	Debtor finance	Invoice finance	Factoring
Scope	Whole ledger	Whole ledger or selected	Whole ledger
Who collects	Ordinarily the business	The business	The funder
Disclosed to customers	Ordinarily not	Not under a confidential facility	Yes
Limit set by	A borrowing base	Per invoice	A borrowing base
Reporting burden	Highest	Moderate	Moderate
Suits	A larger, growing ledger	Selective or smaller needs	A business with no credit control

The reporting row is the one businesses underestimate. A borrowing base has to be substantiated, which means the ledger has to be accurate and current in a way it may not have been before.

The trade

What it gives and what it costs.

What it gives

The largest facility of the receivables options, because it takes the whole book
A limit that grows with invoicing rather than waiting for a review
Ordinarily confidential, so customer relationships stay direct
Pricing per dollar that is generally lower than selective invoice funding
A funding line that scales through a growth phase without renegotiation

What it costs

A borrowing base that can be well below the headline advance on the gross ledger
A limit that falls as debt ages, which is when the cash is most needed
Substantial and ongoing reporting, with audits and reconciliations
A general security agreement over the business, ordinarily
Concentration caps that penalise winning one very large customer

The process

What arranging one involves.

Generalised rather than specific to any funder. This is the most document-heavy of the receivables facilities.

01
Ledger analysis
The funder builds a borrowing base from the current aged receivables report and historic ones, looking at ageing patterns, dilution from credit notes, and concentration. Historic reports matter as much as the current one, because they show how the ledger behaves rather than how it looks today.
Documents commonly required
- Aged receivables reports, current and historic
- Debtor ledger detail
- Credit note history
02
Business and financial assessment
Financial statements, management accounts, bank statements and existing facilities. A debtor finance facility is ordinarily larger than an invoice finance one, and the assessment is correspondingly deeper.
Documents commonly required
- Financial statements
- Management accounts
- Bank statements
- Existing facility details
03
Verification
Sample invoice verification, and in many cases an on-site review of the systems producing the ledger. The funder is lending against a report, so it wants to see how the report is generated.
04
Documentation and drawdown
Facility agreement, security documents and the reporting schedule, which sets out how often the base is resubmitted. The reporting rhythm is a real operational commitment and is worth agreeing deliberately.
Documents commonly required
- Facility agreement
- Security documents
- Reporting schedule

When it goes wrong

Three failure modes specific to this facility.

The base collapses in a slow month

Several large invoices age past eligibility at once and the available limit drops sharply while the business is already short.

What happens:A funding shortfall arriving at the worst possible moment, from a mechanism that was disclosed all along.

Dilution runs above expectation

Credit notes, rebates and short payments reduce what the ledger actually converts to. Funders track this as dilution and adjust the advance rate where it runs high.

What happens:A lower advance rate applied at review, reducing the facility without any change in turnover.

Reporting slips

A borrowing base that is not submitted on time can suspend availability, because the funder no longer knows what it is lending against.

What happens:A facility that stops working for administrative reasons rather than credit ones, which is avoidable and common.

All three are operational rather than commercial. A business that runs a clean, current ledger and submits on time avoids most of what goes wrong with this product, and one that does not will find the facility unreliable regardless of how it was priced.

Who it is genuinely for

The shape of business this fits.

A business selling to other businesses on credit terms, with a ledger large enough to justify the setup and the reporting, a spread of customers rather than one dominant account, and a growth trajectory that a fixed limit would keep interrupting. That combination is what the product was built for and where it clearly outperforms an overdraft.

Below a certain ledger size the administrative load stops being worth it, and selective invoice funding does the same job with far less overhead. Where the ledger is concentrated in one or two customers, the concentration cap removes so much of the base that the facility disappoints regardless of how well everything else fits.

The other precondition is a finance function capable of producing an accurate aged receivables report on a schedule. That sounds like a small thing and it is the operational hinge of the whole arrangement, because the report is what the limit is calculated from.

The cost of being drawn

What a drawn balance costs to carry.

A revolving facility charges on what is drawn rather than on the limit, so this shows the interest cost of an average drawn balance. Service and audit fees sit on top of it. Indicative only, and not a quote or offer of credit.

Indicative interest cost

Weekly

Disclaimer

$500/week

$2,167 /month $26,000 a year while drawn

Facility limit $400,000

$5,000 $500,000

Average drawn balance $200,000

Nothing drawn Fully drawn

Indicative rate 13.00% p.a.

8% (secured) 30% (unsecured)

Apply directly with Prospa Why Prospa

Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.

References

Sources

Personal Property Securities Register
Backs the description of the general security registration a debtor finance facility ordinarily involves.
Companies Office
The register used to confirm entities and related-party relationships during a ledger review.
Commerce Commission
The regulator whose guidance covers conduct and fee disclosure.
External Reporting Board
Context for how receivables and their impairment are presented in financial statements.
Financial Markets Authority, financial advice
Backs the distinction between general information of this kind and regulated financial advice.

FAQ

Debtor finance in New Zealand, questions answered

What is debtor finance?

A revolving facility secured on the whole receivables ledger, where the available limit is calculated from a borrowing base rather than fixed at the outset. It rises as the business invoices and falls as debt ages or is paid.

What is a borrowing base?

The calculation that turns a gross ledger into an available limit. Ineligible debt is removed, a concentration cap is applied to any customer above an agreed share, and a percentage of what remains is advanced.

Why is the available limit lower than the advance rate suggests?

Because the advance rate applies to eligible receivables rather than to the gross ledger. Aged, disputed, related-party and over-concentrated debt is removed first, which commonly reduces the base by a fifth or more before any percentage is applied.

What makes an invoice ineligible?

Ordinarily age past an agreed period, a dispute, a credit note, a contra account with the same party, a related-party relationship, or a customer the funder will not take. The specific rules are in the agreement and they vary between funders.

What is a concentration cap?

A limit on how much of the base any single customer can represent. Where one customer exceeds it, the excess is removed. It exists because a funder lending against a ledger dominated by one debtor is effectively lending against that debtor.

Is it disclosed to customers?

Ordinarily not. Debtor finance is generally confidential, with the business continuing to invoice and collect in its own name. Where collections move to the funder, the arrangement is closer to factoring.

What is dilution?

The gap between what the ledger says is owed and what it actually converts to in cash, caused by credit notes, rebates, settlement discounts and short payments. Funders measure it, and persistent high dilution reduces the advance rate.

How much reporting is involved?

More than any other receivables facility. A borrowing base has to be submitted on an agreed schedule, supported by an accurate aged receivables report, with periodic audits. A business without a reliable finance function will find this the hardest part.

What happens if the base falls below what is drawn?

The facility is over-advanced and the agreement sets out what follows, which ordinarily means repaying the excess. Watching the base against the drawn balance weekly is what prevents this arriving unannounced.

Is it cheaper than invoice finance?

Per dollar, ordinarily yes, because the funder has the whole book and better visibility. Once the reporting overhead and audit costs are counted the comparison narrows, and for a smaller ledger selective funding frequently comes out ahead.

Does it replace an overdraft?

It can, and the two behave differently. An overdraft has a fixed limit reviewed periodically; a debtor finance limit moves continuously with the ledger. Which is better depends on whether the business would rather have certainty or growth.

Is this page financial advice?

No. It describes how a product works in general terms. This site is not a lender, a broker or a registered financial adviser, and whether a facility suits a particular business depends on facts a website cannot see.