Invoice Finance and Factoring, powerful tools to aid economic recovery

The SME sector in New Zealand is the engine that powers our economy. With 97 per cent of all businesses defined as small to medium enterprises and the sector responsible for 28 per cent of the country’s GDP, it is no stretch of imagination that hard times in the SME sector translate to hard times for the country.

According to analysis conducted by Xero, NZ SME revenue shrank by 39 percent during lockdown. But while we are starting to see signs of recovery (coupled with the possibility of a COVID-19 vaccine boosting economic confidence globally), the road to full recovery will be a challenge for SMEs. 


Supporting the SME community in unlocking growth opportunities and increasing their productivity will play a crucial part in our economic recovery. For SMEs, a successful return to normal operations in the coming months will come down to two things; access to working capital to fund growth and embracing digitisation and new ways of working.


Without the security of working capital, SMEs are reluctant to risk taking on new work or large projects to help them recover from loss of productivity and grow their business. Add to this tighter lending restrictions and the end to government subsidies and loan holidays on the horizon, it is easy to see how businesses will err on the side of caution.  

For SME businesses considering opportunities for growth but have concerns about taking on additional debt, the solution may be found in one of the oldest forms of finance in the world.  Invoice Finance (or Factoring as it is sometimes referred to) gives a business access to the funds from their invoices as soon as they are issued. This effectively closes the gap between when an invoice is raised and when the business receives payment. The result is better cash flow to operate, increased production capability and more available working capital for expansion – without taking on further debt. 


Invoice finance or factoring is a tool that businesses can use to improve their cash flow by selling some, or all, of their invoices to a third-party financier. Which invoices are funded is up to the business – this is called selective invoice financing. 

Historically this type of finance had a bad reputation in New Zealand, often being seen as last resort finance for businesses facing insolvency. However, perceptions have now changed, and it is increasingly being used as a key business tool for SMEs looking to have more control of their finance and plan for growth.


There are many types of invoice finance solution, some will take on the role of managing the entire accounts receivables ledger of a business, taking ownership of invoices and chasing payments, others allow the business to be selective, choosing which invoices to fund and when.  

It works like this:

1. Your business provides goods or services to your customers in the usual way

2. You invoice your customers in accordance with your contract or on completion of the work

3. You ‘sell’ the selected invoice(s) to the financier who pays your business the bulk of the value of the invoices (typically between 80% and 90% of the value of approved invoices) straight away

4. The financier now owns the selected invoice(s) and your client pays them directly (any chasing of invoice payments may also be taken on by them)

5. The financier then pays your business the outstanding amount (less their fee) when the invoice has been paid in full


When considering what kind of invoice finance or factoring solution is right for you (both of which will provide a cash injection of your own money sooner) the decision really comes down to visibility and control. While some businesses see advantages in selling their ledger and relinquishing control to a third party, others argue that maintaining client relationships are of the utmost importance and would only consider an invoice financing solution that is not disclosed.  

In our experience, the involvement of the third-party financier is rarely viewed as a negative. Invoice finance and factoring solutions are recognised now as a very clever and efficient way for businesses to manage their cash flow and grow.  

With a cautious banking sector, tighter lending rules and the effects of the pandemic likely to be felt for some time, looking at other options to keep your business moving makes good sense. Having a reliable and selective invoice finance facility can produce a much-needed stabilising effect on the cash flow of your business. Rather than being under the cloud of servicing debt, you may find you are in better control of your financial situation, obligations can be met, with long-term growth and recovery planned for.

For information about invoice finance and more on Apricity Finance, visit here.