Invoice finance costs

Invoice finance costs and fees, explained

Invoice finance pricing looks unfamiliar if you've only ever compared term loans, because it combines a service fee with a separate discount charge on funds drawn. Once unpacked, it's straightforward to evaluate.

Category: Costs & pricing

Product: Invoice Finance

Service fee: Typically a small % of turnover financed
Discount charge: Usually a margin over base rate
Advance rate: Commonly 80%–90% of invoice value
Setup fee: Sometimes charged, sometimes waived

Service fee vs discount charge

The service fee covers the lender's administration of your sales ledger, credit control (on factoring) and collections, and is charged as a percentage of turnover put through the facility. The discount charge is effectively interest on the funds you've actually drawn, calculated daily like an overdraft — so unused facility headroom typically costs nothing.

Advance rate and its effect on cost

Most facilities advance 80%–90% of invoice value on drawdown, with the balance (less fees) released once your customer pays. A higher advance rate can mean a marginally higher service fee, since it increases the lender's exposure — worth weighing against your actual cash flow need rather than defaulting to the maximum available.

Factoring vs invoice discounting cost differences

Factoring, where the lender manages credit control, typically carries a higher service fee than confidential invoice discounting, where you retain control of collections. The trade-off is time and resource: discounting suits businesses with a capable in-house credit function; factoring suits those who'd rather outsource it, accepting the higher fee.

Setup and exit costs

Some lenders waive setup fees to win the business, others charge a modest one-off fee to cover ledger review and onboarding. Minimum service fee levels and minimum contract periods can also apply — check these carefully if your turnover fluctuates seasonally, as they can make the facility costlier than the headline rate suggests.

Frequently asked

Is invoice finance more expensive than a bank overdraft?

It can look that way at first glance, but it typically provides considerably more available funding tied to your sales ledger, and cost scales with what you actually draw, similar to an overdraft in that respect.

What's the difference between service fee and discount charge?

The service fee covers admin and (on factoring) credit control, charged on turnover. The discount charge is interest on the cash drawn, charged daily — think of them as two separate cost components rather than one blended rate.

Do I pay fees on invoices I don't finance?

Typically the service fee applies to the turnover run through the facility, so invoices you choose to finance selectively (on selective facilities) don't incur charges if left out.

Are there minimum fees even if I don't use the facility much?

Some contracts include a minimum monthly service fee to protect the lender's setup and ongoing costs, so it's worth checking this against your expected usage before committing.

Can I switch providers if the fees aren't competitive?

Yes, refinancing an invoice finance facility to a new provider is common and can be arranged to run alongside your existing facility to avoid any funding gap.

See invoice finance costs mapped to your ledger

Call 0345 2690628 for a cost illustration based on your actual turnover.

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