Invoice Finance vs a Trade Credit Account: Which Should NZ Suppliers Choose?
Run your own trade credit account when you can fund the gap and your customers pay reliably, because it costs almost nothing and you keep the relationship. Use invoice finance when growth, not margin, is the constraint and you need the cash out of your debtors ledger faster than your customers will release it.
The Decision, in One Table
This article is about choosing. If you want the definitions first, read trade credit vs invoice finance, which explains what each one actually is. Come back here when you know which way you are leaning and want to pressure test it.
| Question | Your own trade credit account | Invoice finance |
|---|---|---|
| What you are choosing | To be your customer's lender | To sell or borrow against what they owe you |
| When the cash arrives | On their terms, plus however late they are | Usually within a day or two, at a percentage of the invoice |
| How much of the invoice | All of it, eventually | Commonly around 80% upfront, the rest when your customer pays |
| What it costs | No fee. Tied up capital, bad debt, and credit control time | A fee on each invoice, plus setup and monthly charges |
| Who chases your customer | You | You or the financier, depending on the facility |
| Who carries the bad debt | You | You, unless the facility is specifically without recourse |
| Does your customer find out | Not applicable | Depends. Disclosed facilities tell them, confidential ones do not |
| Scales with | Your working capital | Your invoice book |
| Best when | Stable customers, comfortable cash, real credit control | Growing faster than cash allows, or long customer terms you can't shorten |
How Each One Affects the Customer Relationship
This is the part that gets underweighted. A trade credit account is a relationship asset. The customer applied, you said yes, and now there is a limit and a history between you. It makes you harder to replace, and it gives you a reason to talk to their accounts team every month.
Invoice finance can leave that intact or disturb it, depending on the facility. A confidential arrangement keeps your name on the collection and the customer notices nothing. A disclosed facility, and factoring in particular, usually means the financier collects directly and your customer is told to pay them instead. That is fine for some businesses and genuinely damaging for others, especially where you are selling to a small number of large accounts who will read it as a sign of distress.
Ask any provider three things before you sign: whether the facility is disclosed, whether they contact your customers directly, and what their collection tone is. You are outsourcing part of your customer relationship, so find out how it will be handled.
Cost, Over a Year Rather Than One Invoice
One invoice at 3% sounds cheap. The same 3% on every invoice, twelve times a year, is a 3% haircut on revenue, which for most wholesalers is a meaningful share of net margin.
Illustrative comparison. A Christchurch building products supplier turns over $1.8 million on 30 day terms, with debtor days at 52 and bad debt running at about 0.8% of revenue.
| Route | Visible annual cost | Hidden annual cost |
|---|---|---|
| Own trade credit account | $0 in fees | About $256,000 of cash tied up in debtors, plus roughly $14,400 written off, plus credit control time |
| Invoice finance at 2% per invoice | About $36,000 in fees, plus setup and monthly charges | Reduced tied up cash. Bad debt usually still yours unless the facility says otherwise |
Neither column is automatically the winner. The question is whether releasing roughly a quarter of a million dollars of working capital earns you more than $36,000 a year. If that capital would fund stock you can sell at a 30% margin, it comfortably does. If it would sit in the bank, it does not. For the full breakdown of what invoice finance charges look like in New Zealand, see how much invoice finance costs in NZ.
Speed of Getting Paid
Both routes can be made faster before you pay anyone a fee. Tighten your invoicing, bill on the day of delivery, put the due date in words rather than codes, and chase at day one rather than day 40. Suppliers who do this well often cut a week or more off their debtor days for nothing. Start with reducing debtor days without damaging relationships.
Once that is done, what's left is a structural gap, and that is the gap worth paying to close.
Where PaidTerms Fits
PaidTerms is a third option that sits between the two. Rather than funding your debtors ledger after the fact, your customer chooses instalments at the point of sale and PaidTerms pays you in full within 12 hours. The merchant fee is 1.5%, the customer pays the instalment fee for the 3, 6 or 9 month term they choose, and there is no debtors ledger to finance because the invoice never ages. See pricing.
It is not invoice finance and it is not a facility against your book. It settles individual sales. If your problem is a backlog of already issued invoices, invoice finance is the right tool and PaidTerms is not. If your problem is that buyers ask for terms you cannot fund, it is the other way round.
More: the Invoice Finance guide, the Trade Credit guide, invoice factoring in NZ compared with PaidTerms and the pros and cons of offering trade credit.
Frequently Asked Questions
Should a supplier use invoice finance or offer its own credit terms?
Offer your own terms when you can fund the wait comfortably and your customers pay reliably, because it costs you almost nothing in fees and strengthens the relationship. Use invoice finance when growth is limited by cash rather than by demand, or when customer terms are longer than you can carry.
Does invoice finance mean my customers find out?
It depends on the facility. A confidential arrangement keeps collection in your name and your customer notices nothing. A disclosed facility, and factoring in particular, usually means the financier collects directly and your customer is told. Ask which one you are being offered before signing.
How much of the invoice do I get upfront with invoice finance?
Commonly around 80% of the invoice value, with the balance released once your customer pays, less the fee. The exact advance rate depends on your customers, your industry and the provider, so ask for it in writing.
Do I still carry the bad debt if I use invoice finance?
Usually yes. Most facilities are with recourse, which means an invoice your customer never pays comes back to you. Facilities without recourse exist and cost more. This single clause is the most important thing to check in the agreement.
Can I use both a trade account and invoice finance?
Yes. Many suppliers keep accounts for long standing customers and finance only the slowest paying or largest invoices. Some providers allow selective invoice finance for exactly this, rather than requiring your whole ledger.
