Invoice discounting in New Zealand costs a discount charge on the cash you draw, plus a service fee on every invoice you hand over, plus any set-up, minimum monthly and exit fees. To compare it with an overdraft or line of credit, add up a year of those fees and divide by the average cash you actually have in use. On a small debtor book, the minimum fee alone can double the cost.
That last step is the one most owners skip. Funders quote in pieces: a charge here, a fee per invoice there, an advance of 80–90%. None of those pieces can be compared directly with a line-of-credit offer. This guide turns them into one number and then shows where that number goes wrong.
What are you actually paying for?
Most NZ invoice discounting and debtor finance facilities are built from some mix of these charges. Not every funder uses all of them, and some roll everything into a single fee per invoice.
| Charge | What it’s calculated on | What to ask |
|---|---|---|
| Discount charge | The cash you’ve drawn, for the days it’s out | Is it charged daily on the balance, or as a flat amount per invoice? |
| Service or admin fee | The face value of each invoice you assign, or a fixed monthly amount | Is it on every invoice in the ledger, or only the ones you fund? |
| Minimum monthly fee | A floor, whatever you use | What’s the minimum, and when does it apply? |
| Set-up costs | One-off: establishment, legal, PPSR registration, bank priority deed | Who pays the legal costs for the deed? |
| Exit or notice fee | Ending the facility early | How long is the notice period, and what does leaving cost? |
| Extras | Late-paying debtors, audits, same-day payments, credit checks on your customers | Which of these will I actually pay in a normal month? |
Two terms change the price more than anything in the headline.
Advance rate. If the funder advances 80% of a $10,000 invoice, you get $8,000. Any fee charged on the $10,000 is really a charge on $8,000 of cash. That makes it a quarter more expensive than it looks.
Whole ledger or selective. A whole-ledger facility takes every invoice, so service fees apply even to invoices you didn’t need funded. A selective, or “spot”, arrangement lets you choose which invoices to fund. It’s usually dearer for each invoice but can be cheaper over the year if you only need cash now and then.
How do you turn the fees into one comparable number?
Use this as the measure for every funding quote: dollars per year for each $1,000 of cash in use.
Annual cost per $1,000 = (a year of total fees ÷ average cash drawn) × 1,000
For a single invoice, the same idea looks like this:
Cost per $1,000 a year = (fees on the invoice ÷ cash advanced × 1,000) × (365 ÷ days until the customer pays)
The second formula is the one that catches people out, because the days figure sits on the bottom of the fraction. We come back to it below.
A worked example: a $100k debtor book
This is an example. The fee levels are illustrative, not a quote from any funder or from us.
A Hamilton wholesaler invoices $800,000 a year on account. Customers take about 46 days to pay, so roughly $100,000 is owed at any time. (Our cash conversion cycle guide shows how to get those figures from your own accounts.)
The offer is a whole-ledger facility:
- advance of 80%, so about $80,000 of cash in use on average;
- a discount charge that works out at $650 a month on that $80,000;
- a service fee of 0.4% of every invoice assigned;
- a $500 minimum monthly fee;
- $1,500 to set up, including legal and PPSR costs.
| Item | Year one |
|---|---|
| Discount charge ($650 × 12) | $7,800 |
| Service fee (0.4% × $800,000) | $3,200 |
| Minimum fee top-up (normal fees are about $917 a month, above the $500 floor) | $0 |
| Set-up | $1,500 |
| Total | $12,500 |
| Cost per $1,000 in use ($12,500 ÷ 80) | about $156 |
From year two, without the set-up, the cost is $11,000, or about $138 for each $1,000 in use. That’s the number to set beside a line of credit or overdraft quote, worked out the same way.
Why do quick-paying customers make it more expensive?
In the example, the discount charge comes to $97.50 per $1,000 a year however long customers take. The service fee is different. On a $10,000 invoice it’s $40, against $8,000 advanced: $5 for every $1,000. That $5 pays for funding until the customer pays, and the sooner they pay, the fewer days it covers.
| Customer pays in | Service fee per $1,000 a year | Plus discount charge | Total per $1,000 a year |
|---|---|---|---|
| 15 days | $122 | $97.50 | about $219 |
| 30 days | $61 | $97.50 | about $158 |
| 45 days | $41 | $97.50 | about $138 |
| 60 days | $30 | $97.50 | about $128 |
| 90 days | $20 | $97.50 | about $118 |
So invoice finance works out cheapest, per dollar, for slow but reliable customers, such as large corporates, councils and main contractors. If most of your customers pay in a fortnight, you’re paying a full invoice fee for very short funding. Before you sign, it may be worth cutting your debtor days instead. Every day you take off also takes cash out of the facility.
Watch the other end too. Many funders treat invoices more than 90 days old, invoices to related companies, and construction retentions as ineligible. Those sit in your ledger and may attract service fees, but you can’t draw against them.
The minimum fee trap on a small book
Now shrink the business. A Nelson contractor invoices $200,000 a year, with about $25,000 owed at any time and $20,000 drawn. On the same fee scale, the normal fees would be:
- discount charge: about $163 a month;
- service fee: 0.4% × $200,000 = $800 a year, or about $67 a month;
- normal fees: about $229 a month.
But the facility has a $500 monthly minimum, so that’s what they pay: $6,000 a year, plus $1,500 to set up. Year one comes to $7,500 on $20,000 in use, or about $375 per $1,000. That’s well over twice the wholesaler’s cost, on identical pricing. The fees didn’t change. The minimum did the damage.
If your debtor book is small or only needs funding in a busy season, ask the funder to show your expected monthly fees next to the minimum before you look at anything else.
How does it stack up against a line of credit or overdraft?
You can’t compare these by headline. Put each quote through the same sum, using your own drawing pattern.
| Invoice discounting | Line of credit | Bank overdraft | |
|---|---|---|---|
| Charged on | Cash drawn, plus fees on each invoice | Usually the amount drawn, plus any line or account fees | Amount drawn, plus a limit fee on the whole limit |
| Grows with sales? | Yes, automatically | No, the limit is fixed until reviewed | No |
| Assessed on | Your customers’ quality and the debtor ledger | Turnover and bank statements | Accounts, security and the bank relationship |
| Security | The receivables, registered on the PPSR | Often unsecured | Often a general security or property |
| Admin | Ongoing reporting and assigning invoices | Draw and repay | Draw and repay |
| Minimums and exit | Common | Varies by lender | Limit fee whether used or not |
Usage matters most. Say you only need $40,000 for ten weeks before Christmas. A line of credit costs you mostly for those ten weeks. A whole-ledger facility charges service fees on every invoice, all year. On the other hand, if your sales and debtor book grow every month, invoice finance keeps up without you having to ask for a bigger limit.
Already holding an invoice finance offer? Get a line-of-credit option to put beside it. Then compare the two in the same dollars per $1,000.
The GST and security points that change the sums
No GST to claim on the funding charges. Inland Revenue lists interest and “providing credit under a credit contract” as financial services, which are exempt supplies. Compare quotes without adding GST, and don’t assume you’ll claim any back. If a funder charges GST on a particular admin fee, ask your accountant how it’s treated. If a factored debt later goes bad, Inland Revenue’s public ruling BR Pub 21/03 deals with whether a GST bad-debt deduction is available. Talk to your accountant before writing the debt off.
Your bank’s security may get in the way. Under section 17 of the Personal Property Securities Act, a transfer of accounts receivable counts as a security interest, so the funder registers a financing statement on the PPSR. If your bank already holds a general security over “all present and after-acquired personal property” (one of the collateral descriptions the PPSR register uses), it already has a claim over your debtors. The new funder will usually need a priority deed or a release from the bank first. Allow time and legal costs for that. Our PPSR guide explains how ranking works.
A five-step check before you sign
- List your last 12 months of invoicing: the total, the average days to pay, and the biggest customers as a share of the ledger. Funders usually limit how much of the facility can depend on one customer.
- Ask for every fee in writing, including minimums, notice periods and extras for late-paying debtors.
- Run both formulas. Use the annual one for the whole facility and the single-invoice one for your fastest and slowest payers.
- Get at least one non-invoice quote, such as a line of credit or working capital loan, and put it through the same sum.
- Check your cash gap is a timing problem, not a trading problem. The cash-flow gap calculator shows which one you have.
Paying to wait for your customers? Let’s compare the alternatives
Slow-paying customers are one of the most common reasons owners talk to us. Invoice discounting is one way to fund the wait. Once you’ve worked out its true cost per $1,000, though, a business line of credit or a working capital loan secured on property (from $20,000 up to $1m) may be cheaper, simpler or both. Unsecured decisions are sometimes made the same day for businesses trading six months or more. In some cases, property-secured funding can be paid within 24 hours of approval.
Here’s what to expect when you ask:
- About a minute to enquire, and your credit file isn’t touched, so you can compare quotes before you commit to anything.
- Your details stay with us. We don’t send them to a pile of lenders, so you won’t get a flood of calls from people you’ve never heard of.
- A real person goes through your numbers: your debtor book, how quickly customers pay and what you need the cash for. Then they call you.
- Please fill in the form accurately, especially your turnover and roughly how much you need. Honest figures mean the first option we bring you is a realistic one.