Invoice finance pricing is not quoted as a single number. There are typically two or three cost components, applied in different ways, and the total cost depends on how much you draw, how quickly customers pay, and the type of facility you’re using.
The service charge is usually the bigger number, even though the discount rate is the one providers lead with. In the worked example below it costs more than three times the interest.
The Three Main Fee Components
1. Discount Rate (or Discount Fee)
The discount rate is the interest charged on the outstanding advance. It is applied to the balance you have drawn, meaning the money the lender has advanced that your customer has not yet paid back.
How it’s expressed: As an annual percentage (e.g. base rate + 2%), or as a monthly percentage (e.g. 1.2% per month). Some providers express it as a daily rate.
How it accrues: The discount fee accumulates daily on the outstanding advance. If you advance £100,000 and the customer pays after 45 days, you pay the discount rate on £100,000 for 45 days.
Typical range: no UK lender publishes a rate card for invoice finance, so every figure in circulation is a collected range rather than a quoted price. Published comparisons put the margin between roughly 1.5% and 4.5% a year over base rate, and they disagree with each other, because the quote follows your ledger rather than a tariff. With Bank Rate at 3.75%, held by the Bank of England on 30 July 2026, that is about 5.25% to 8.25% a year on the balance you have drawn. Selective and spot facilities charge more per transaction.
The discount rate is the primary borrowing cost, and it behaves like interest on a loan.
2. Service Charge (or Management Fee)
The service charge covers the administration of the facility. For factoring, it also covers the credit control service. For discounting, it covers ledger management and audit costs.
How it’s expressed: As a percentage of annual turnover, applied to the invoice turnover you assign to the facility.
How it’s charged: Usually invoiced monthly, based on the previous month’s invoice turnover.
Typical range: published comparisons put factoring at roughly 0.5% to 3% of turnover, with credit control included, and invoice discounting lower at roughly 0.2% to 1.5%, because you keep the credit control work yourself. The same caution applies as above. These are ranges collected from comparison data, not tariffs anybody quotes.
The service charge is the fixed-cost element. It applies to invoice volume, not the drawn balance, so it accrues whether or not you draw heavily on the advance.
3. Additional / One-Off Fees
These vary by provider and facility type:
| Fee | Description |
|---|---|
| Arrangement fee | Charged at setup, typically 1% to 2% of the facility limit, or a flat fee |
| Renewal fee | Annual review and renewal charge, where applicable |
| Audit fee | For invoice discounting, periodic verification of the debtor book |
| Minimum fee | A minimum monthly charge if invoice volume falls below a threshold |
| CHAPS / same-day payment fee | Charge for same-day advance transfers |
| Refactoring fee | Charged when an invoice remains unpaid beyond agreed terms and is extended |
| Bad debt protection premium | For non-recourse facilities, an additional charge to cover bad debt risk |
Total Cost: A Worked Example
Business profile:
– Annual turnover: £2 million
– Average debtor days: 45
– Product: Invoice factoring
– Facility: £200,000 limit
Indicative annual cost:
| Component | Rate | Annual cost |
|---|---|---|
| Discount rate | Base rate plus 2% on an average drawn balance of £100,000 | £5,750 |
| Service charge | 1% of £2m turnover | £20,000 |
| Arrangement fee (amortised over 3 years) | £3,000 spread over three years | £1,000 |
| Estimated total annual cost | £26,750 |
As a percentage of turnover, that is about 1.3%.
The model assumes Bank Rate at 3.75%, the level the Bank of England held at its meeting on 30 July 2026. Change the margin or the debtor days and only the interest line moves. The service charge follows your turnover rather than how much you borrow, so drawing less does not reduce it. That is the line worth negotiating hardest.
What Affects Your Rate
Providers price risk. Factors that influence the discount rate and service charge offered:
- Turnover: larger facilities attract more competitive rates
- Debtor quality: creditworthy customers with good payment history = lower discount rate
- Debtor concentration: high concentration in one customer increases lender risk = higher rate or restricted facility
- Sector: some sectors (construction, recruitment) attract specialist pricing
- Advance rate: higher advance percentages carry more risk = higher discount rate
- Recourse vs non-recourse: non-recourse facilities include a bad debt protection premium
Comparing Providers: What to Ask
When comparing invoice finance quotes:
- Is the discount rate fixed, variable, or a margin over base rate, and which balance is it applied to?
- What is the service charge, and which turnover measure is the percentage taken from?
- Is there a minimum monthly service charge?
- What is the arrangement fee and renewal fee?
- Are audit fees charged separately?
- What advance rate is being offered?
- What happens to the service charge if volume drops? Is there a floor?
Getting these answers in writing for three or more providers makes comparison possible. A lower headline discount rate is worth less than it looks. On the figures above the service charge costs more than three times the interest, so a provider who shaves half a point off the margin and charges more on turnover leaves you worse off.
Selective vs Whole-Ledger: Fee Structure Comparison
| Selective Invoice Finance | Whole-Ledger Facility | |
|---|---|---|
| Fee structure | Per invoice (flat %) | Discount rate + service charge on turnover |
| Minimum charges | None or minimal | Usually applies |
| Best for | Low volume or occasional use | Regular, high-volume financing |
| Cost at scale | Expensive | Competitive |
Related Pages
- Invoice Factoring
- Invoice Discounting
- Selective Invoice Finance
- Selective Invoice Finance vs Full Facility
- Invoice Factoring vs Invoice Discounting
- Recourse vs Non-Recourse Invoice Finance