Debtor finance vs a working capital loan

Why do SMEs with big receivables look at debtor finance?

If your customers are other businesses, your balance sheet probably carries a large debtors figure — and it probably grows faster than you’d like. Debtor finance appeals because it turns that asset into cash directly. As invoices are raised, the funder advances an agreed portion of eligible invoices; as customers pay, the advance is repaid and the balance is released.

Slow payment by larger customers is a real and measured problem. The Payment Times Reporting Regulator reported in February 2026 that the average number of days large businesses take to pay 95% of their small business invoices rose to 64 days from the previous 58. For a supplier on 30-day terms, that’s a month of extra funding carried on someone else’s behalf.

But debtor finance isn’t the only way to fund a ledger, and for many established SMEs it isn’t the best one.

How do the structures compare?

Feature	Debtor finance (invoice discounting / factoring)	Working capital loan or line	Property-backed facility
Limit	Moves with eligible invoices	Fixed, reviewed	Fixed, sized on security
Reporting	Regular ledger reporting, often weekly	Periodic financials	Periodic financials
Customer involvement	Possible (verification, notices)	None	None
Excluded debtors	Aged, disputed, related-party, progress claims, concentration	Not applicable	Not applicable
Security	Receivables; often all-assets registration	Varies; unsecured options exist	Mortgage or caveat
Typical range here	Specialist product	Typically $5k – $500k unsecured	$20k – $5m

The key question is whether you want your funding tied to the ledger’s movements, with the reporting that entails, or sized once and left to you to manage.

When does debtor finance work well?

• Rapid growth with quality customers. Funding rises automatically with sales, which suits a business adding significant turnover.
• Diversified ledger. Many customers of similar size, on standard terms, with low disputes.
• Limited other security. No property to offer and a balance sheet a cash-flow lender finds thin.
• Discipline around invoicing. Clean, timely invoices and good ledger hygiene.

When does a loan or line fit better?

• Concentrated ledger. If one or two customers make up much of the debtors, concentration limits can cap what a ledger funder will advance. Our guide to customer concentration risk explains why.
• Progress claims and retentions. Construction, engineering and project businesses often find large parts of their ledger ineligible.
• Need beyond the ledger. Stock, wages ahead of a contract, or capex aren’t funded by invoices that don’t exist yet. See contract mobilisation funding.
• Customer relationships. Some businesses simply prefer that no third party ever contacts or verifies with their customers.
• Administrative load. A small finance team may not want weekly ledger reporting.

In these cases, a working capital facility or line of credit sized on turnover — or backed by property — can deliver a similar result with less friction. If you’d like a view on which way your ledger points, send us the outline.

What about the PPSR?

Receivables are personal property, so security over them is typically registered on the Personal Property Securities Register, operated by the Australian Financial Security Authority. A ledger funder will often register an interest over receivables, and sometimes over all present and after-acquired property.

That has two consequences worth planning for:

1. Other lenders will see it. A registration over all assets can make it harder to add another facility later without the ledger funder’s agreement.
2. Exits need a release. When you refinance away, the new lender will want the registration discharged at settlement.

It’s worth searching the register for your own business before any refinance — historical registrations from long-finished equipment or supplier arrangements sometimes remain and need to be cleaned up.

Illustrative comparison: a $14m services business

Illustrative only; no real business. A facilities-maintenance contractor turns over about $14 million, with debtors averaging roughly $2.3 million. Two government-related clients represent around half the ledger, and some work is billed as monthly progress claims.

A ledger funder applies concentration limits and excludes the progress-claim debtors, so the eligible ledger — and therefore the advance — is far smaller than the headline debtors figure suggests. The business instead takes a property-backed revolving facility against a director’s investment property, sized on the working capital it actually needs, with no ledger reporting and no customer involvement. The trade-off is that the limit won’t grow automatically with sales, so the directors diarise a review each year.

How do you decide?

Run your numbers first. The working capital cycle calculator will show how much of your cash is sitting in debtors and what each day of collection is worth. Then ask:

• What share of the ledger would a funder actually count as eligible?
• Would I rather report weekly or annually?
• Is there property that could secure a fixed facility instead?
• How long will I need the funding, and how will I exit it?

A simple eligibility test

Take your aged debtors listing and strike out anything over 90 days, related-party balances, disputed items, retentions and any customer above a concentration cap. What’s left is roughly the ledger a funder would count. Compare that with the working capital you actually need.

Talk it through before you sign up to a ledger facility

If a debtor facility looks like the only option, it’s worth a second opinion on the alternatives. Tell us turnover, debtors, the main customers and any property available.

Your enquiry won’t trigger a credit check, and your ledger details aren’t sent around a lender panel — a specialist reviews them and tells you plainly whether a loan, a line or a property-backed facility would serve you better. Accurate figures for debtors and existing security help us answer on the first call. Compare your options with a specialist.