How much does invoice finance cost? — Answers

2 min read

Two chargesService fee + discount

On funds advancedDiscount is like interest

Usage-drivenMore use, more cost

Compare on totalNot one fee

The two main charges

Invoice finance is priced differently from a term loan. There is usually a service fee — a percentage of turnover or a fixed charge for running the facility — and a discount charge, which works like interest on the money advanced against your invoices for the time it is outstanding. Together they make up the cost, and neither alone tells you the whole price.

What drives the cost up or down

The discount charge rises the longer your customers take to pay, because the funds are advanced for longer. So slow-paying debtors make invoice finance dearer, while tight credit control makes it cheaper. The service fee reflects the volume and administration of your ledger. A business with clean, quick-paying customers pays less than one with a messy, slow ledger. See factoring vs discounting.

Comparing it fairly

Because the charges are structured differently from a loan, compare invoice finance on the total cost over a representative period, not on any single fee. Work out what you would pay in service fee and discount charges over, say, a typical quarter given your real debtor days. That total is the figure to weigh against the value of the cash arriving early. See working out true cost and the true cost guide.

Improve the cost by tightening credit control — see chasing overdue invoices. To explore facilities, apply.

Frequently asked questions

Is invoice finance more expensive than a business loan?

It depends on how you use it and how fast your customers pay. Priced as a service fee plus a discount charge, it can be very cost-effective for a business with steady, reasonably quick-paying invoices, and dearer for one with slow debtors. Compare the total cost over a representative period against a loan's total repayable rather than assuming one is always cheaper.

Does invoice finance cost more if customers pay late?

Yes — the discount charge accrues for as long as the advanced funds are outstanding, so slow-paying customers increase the cost. This is why tight credit control directly lowers the price of invoice finance: the faster invoices are settled, the less discount charge you pay. Chasing overdue invoices is both good practice and a real cost saving on this product.