A cleaning trolley and stacked supplies in an empty commercial corridor

Working capital product

Funding and collections , handed over together.

Factoring advances against invoices and then collects them. The customer is told, the funder chases the payment, and the credit control function leaves the business along with the risk of doing it badly.

Last reviewed 8 September 2026

Indicative interest cost

Weekly

Disclaimer

$216/week

$938 /month $11,250 a year while drawn

Facility limit $150,000

$5,000 $500,000

Average drawn balance $75,000

Nothing drawn Fully drawn

Indicative rate 15.00% 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 separate it from the alternative.

It is disclosed. The customer is notified that the invoice is assigned and pays the factor rather than the business. That single fact drives every other difference.
The factor collects. Statements, reminders and chasing move out of the business. For some that is the main reason to do it and for others it is the reason not to.
It funds and administers together. The fee covers a service as well as money, which is why comparing it against a pure funding line on rate alone gets the answer wrong.
It ordinarily takes the whole ledger. Factoring is generally arranged across all customers rather than invoice by invoice, because the collection function only works that way.
Indicative only. Every figure here is illustrative. Actual advance rates, fees and terms come from the factor after assessment.

The mechanism

What changes for the business and for its customers.

The business invoices as normal, with a notice of assignment on the invoice directing payment to the factor. The factor advances a proportion of the value within a day or two, and then takes responsibility for collecting it. Statements, reminders and follow-up calls come from the factor.

For the customer the practical change is where the money goes and who contacts them about it. For the business the change is larger. The people and the time previously spent on credit control are freed, and so is the awkwardness of a small supplier chasing a much larger customer, which is a real constraint that rarely appears in a spreadsheet.

When the customer pays, the factor takes its advance and its fees and releases the balance. From the outside the process resembles invoice finance. From the inside it is a different arrangement, because a function has been outsourced rather than a receivable funded.

Invoice raised by

The business

Notice of assignment

On the invoice

Payment goes to

The factor

Chasing done by

The factor

The distinction that matters

Factoring against confidential invoice finance.

These two are routinely presented as the same product with different names. They are not, and the row that decides between them is the first.

Feature	Factoring	Confidential invoice finance
Customer is notified	Yes	No
Who collects the debt	The factor	The business
Credit control effort	Moves out of the business	Stays in the business
Ordinarily covers	The whole ledger	Whole ledger or selected invoices
Relative fee	Higher, because it includes a service	Lower, funding only
Suits a business that	Has no credit control function	Values the customer relationship staying direct

Neither is better in the abstract. A business with nobody to chase invoices is buying something real with the higher fee. A business with a capable finance function is paying for work it already does well.

Worked example

A $150,000 ledger, factored.

A labour-hire business turns over roughly $150,000 a month on 30-day terms and has one part-time administrator splitting their time between payroll and chasing payment. Collections run at an average of 52 days.

Under a factoring arrangement at an 80% advance, roughly $120,000 of the ledger is available at any time, and the collection function moves to the factor. On indicative pricing of 1.4% per 30 days on the advance and a 0.8% service fee on invoice value, the facility costs in the order of $3,100 a month at that volume.

The comparison worth making is not against a term loan. It is against the cost of the administrator’s time, the cost of the days that separate 52 from 35 if the factor collects faster, and the value of the owner not spending Friday afternoons on the phone. Where those three add to more than $3,100, the arrangement pays for itself before the funding is counted.

Illustrative figures

Monthly ledger: $150,000
Advance at 80%: ~$120,000
Indicative discount fee: ~$1,900 a month
Indicative service fee: ~$1,200 a month
Indicative total: ~$3,100 a month

Illustrative on stated assumptions and rounded. Not a quote or offer of credit.

The disclosure question

What customers actually think, and what it costs to be wrong.

The concern

That it reads as distress.

The usual objection to factoring is that a notice of assignment tells every customer the business needs money. It is a genuine concern and it is worth weighing rather than dismissing.

In practice the reaction varies by sector. In construction, labour hire, transport and recruitment, factoring is common enough that a notice of assignment reads as ordinary. In sectors where it is uncommon, it stands out more.

The question worth asking is what the business’s own customers are used to seeing, and the answer is usually available from anyone who has worked in that sector for a few years.

The other side

That a third party chases better.

A small supplier chasing a large customer is in an uncomfortable position, and the discomfort has a cost that shows up as days outstanding rather than as a line in the accounts.

A factor has no relationship to protect and a process that runs whether or not anyone feels like making the call. Collections frequently improve for that reason alone, and the improvement is worth money.

It also removes a task from an owner who is ordinarily the worst person to do it, both because their time is expensive and because they are the least willing to be firm with a customer they want to keep.

Where it fits

Four situations that point at factoring.

No credit control function

Where invoices are chased by whoever has time, collections drift. Handing the function to a party that does it systematically is buying an outcome rather than only cash.

A sector where it is normal

In construction, transport, labour hire and recruitment, notices of assignment are routine and carry little signal. The disclosure objection is much weaker there.

Rapid growth in headcount

A business adding staff pays wages weekly and bills monthly. The gap widens with every hire, and the funding has to scale at the same speed.

An owner doing collections

The most expensive person in the business spending hours on the phone about invoices is a cost that never appears as one. Factoring converts it into a fee that does.

The trade

What it gives and what it costs.

What it gives

Funding and a collections function in a single arrangement
A limit that moves with the ledger rather than needing a review
Collections handled by a party with no relationship to protect
Time returned to the owner or the finance function
Access for businesses with strong customers and a thin balance sheet

What it costs

Disclosure to every customer, which cannot be undone quietly
A higher fee than a funding-only facility, because a service is included
Loss of direct control over how customers are chased
A whole-of-ledger commitment rather than invoice-by-invoice flexibility
A general security agreement over the business in most cases

The process

What setting up a factoring facility involves.

Generalised rather than specific to any factor.

01
Ledger and customer review
The factor assesses who the customers are and how they pay, because it will be collecting from them. Customer quality carries more weight here than in almost any other facility.
Documents commonly required
- Aged receivables report
- Customer list
- A sample of invoices
02
Business assessment
Entity details, bank statements and existing commitments, with attention to any existing general security that would have to be resolved.
Documents commonly required
- Entity and director details
- Bank statements
- Details of existing facilities
03
Terms, security and notices
Advance rate, fees, concentration limits and the wording of the notice of assignment. The notice is worth reading, because it is the part every customer sees.
Documents commonly required
- Facility agreement
- Security documents
- Notice of assignment wording
04
Customer notification and first draw
Customers are notified, remittance details change, and the facility begins. How the notification is handled sets the tone, and a short call to the largest customers before the letter arrives is ordinarily better received than the letter alone.

When it goes wrong

Three situations to understand before signing.

A customer objects to the assignment

Some contracts restrict assignment of receivables, and some customers simply dislike it. Where a large customer objects, the ledger available to fund shrinks.

What happens:A facility that is smaller in practice than it was sized to be, discovered after the arrangement is disclosed.

Collections are handled badly

A factor chasing a valued customer clumsily damages a relationship the business spent years building, and the business is not in the room when it happens.

What happens:A commercial cost that no fee schedule shows, which is why how a factor collects is worth asking about directly.

An invoice is recharged

Most arrangements are with recourse, so an invoice unpaid past an agreed period comes back to the business along with the advance already drawn against it.

What happens:Cash that arrived early has to be found again, at a point where the customer relationship is already strained.

The second of these is the one businesses underweight. Asking a factor how it approaches a customer that is thirty days late, and asking for the escalation sequence in writing, is a reasonable question and the answer is informative.

The honest limit

What factoring is not.

It is not a solution to unprofitable trading. Advancing against invoices brings forward money that already exists in the ledger, and where the underlying margin does not cover the cost of running the business, arriving at the same shortfall earlier and with a fee attached makes the position worse rather than better.

It is also not credit insurance. Under a recourse arrangement the business still carries the risk that a customer does not pay, and the factor’s collection effort is not a guarantee of the outcome. Non-recourse arrangements exist and are priced accordingly, and what they cover is set out in the agreement rather than implied by the label.

What it genuinely is, done well, is a funding line and an outsourced credit control function bought together at a price that reflects both. Judged as that, it is straightforward to evaluate. Judged as cheap money, it always looks expensive.

The cost of being drawn

What an advanced balance costs to carry.

Factoring charges on what is advanced rather than on the limit, so this shows the interest cost of an average advanced balance. The service fee, which covers collections, sits on top of it. Indicative only, and not a quote or offer of credit.

Indicative interest cost

Weekly

Disclaimer

$216/week

$938 /month $11,250 a year while drawn

Facility limit $150,000

$5,000 $500,000

Average drawn balance $75,000

Nothing drawn Fully drawn

Indicative rate 15.00% 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 security registration a factoring facility ordinarily involves.
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

Invoice factoring in New Zealand, questions answered

What is invoice factoring?

An arrangement where a business assigns its invoices to a factor, receives an advance against them, and the factor collects payment from the customer directly. The assignment is disclosed, so the customer knows and pays the factor.

How is it different from invoice finance?

Disclosure and collections. Under confidential invoice finance the business collects its own invoices and the customer sees nothing different. Under factoring the customer is notified and the factor does the chasing, which is why the fee includes a service as well as funding.

Will customers think the business is in trouble?

It depends heavily on the sector. In construction, transport, labour hire and recruitment, notices of assignment are common and carry little signal. In sectors where factoring is uncommon, it stands out, and that is worth weighing against what the arrangement is worth.

Does the whole ledger have to go through it?

Ordinarily yes. The collection function only works across the ledger, so factoring is generally a whole-of-book arrangement rather than an invoice-by-invoice one. Selective funding is available under a different product.

What does factoring cost?

A discount fee on the amount advanced plus a service fee on invoice value, with the service fee ordinarily higher than under a funding-only facility because collections are included. Comparing it against a funding line on rate alone will always make it look expensive.

Who carries the risk if a customer does not pay?

Under a recourse arrangement, which is the common form, the business does. The invoice is recharged after an agreed period and the advance has to be repaid. Non-recourse arrangements shift some of that to the factor, cost more, and cover what the agreement says they cover.

Can a customer refuse the assignment?

Some contracts restrict assignment of receivables and some customers object as a matter of policy. Where a significant customer does, the fundable ledger shrinks, which is worth checking against the largest accounts before the arrangement is signed.

How does the factor treat customers?

It varies, and it matters. Asking for the escalation sequence in writing, and asking how a customer thirty days late is approached, is a reasonable question at the quoting stage and the answer says a good deal about the fit.

Is security required?

Ordinarily 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 before a facility can begin.

Can the arrangement be ended?

The agreement sets out the notice required and any minimum term or minimum fee. Because customers have been notified, unwinding is more visible than starting was, and the exit terms are worth reading before the entry ones are agreed.

Does it improve collection times?

Frequently, because a party with no relationship to protect follows a process regardless of how anyone feels about it. That improvement is part of what the service fee is buying and belongs in the comparison alongside the funding.

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 factoring suits a particular business depends on facts a website cannot see.