Invoice Finance Costs UK: Fees and a Worked Example

Invoice finance costs usually include a service fee and a discount charge on the money you use. To compare providers fairly, calculate the total cost using the same turnover, borrowing level and customer payment assumptions, including minimum and exit charges.

The order book looks healthy. The bank balance does not.

That is familiar territory for businesses paying staff and suppliers weeks before customers settle their invoices. Invoice finance can shorten that gap. But before you sign, you need to know what the facility will cost in a normal month and a difficult one.

A small-looking percentage is not enough information.

Why invoice finance costs matter in the current market

The British Business Bank’s 2026 finance markets report notes increased use of flexible finance in 2025 to support cash flows. For a growing B2B business, the useful question is not simply whether funding is available. It is whether the funding leaves enough margin after the work has been delivered.

A recruitment company paying weekly wages and an engineering firm waiting on monthly customer payments may need very different facilities. Their costs should reflect how each business actually trades.

What fees do invoice finance providers charge?

The service fee

This covers running the facility. In factoring, it also reflects agreed sales ledger management and collection support. It is often expressed as a percentage of assigned turnover, but the calculation basis varies.

Ask whether it applies to all assigned sales or only funded invoices. Check whether turnover is measured including VAT and whether a minimum monthly or annual fee applies. A low percentage with a high minimum can be poor value for a smaller business.

The discount charge

This is similar to interest. It normally relates to the amount drawn and the time it remains outstanding. A quote may show a margin above a reference rate, rather than a fixed all-in number.

Ask which reference rate applies, whether there is a floor and how the daily charge is calculated. Slower-paying customers can make funding more expensive even if the rate itself has not changed.

Additional charges

Depending on the provider and agreement, there may be arrangement, audit, transfer, renewal, minimum utilisation, bad debt protection or termination charges. Some will not apply to your quote. The point is to ask, not to assume.

Request a complete schedule of charges and a written explanation of the notice period before committing.

A worked example of invoice finance costs

This example is hypothetical. It is not a Sorbus quote, a typical market rate or an indication of what your business will qualify for.

Assume a business assigns £100,000 of invoices in one month. Its illustrative service fee is 1%, and it uses an average £60,000 of funding for 30 days at an illustrative all-in annual discount rate of 10%, calculated on a 365-day basis.

• Service fee: £100,000 × 1% = £1,000.
• Discount charge: £60,000 × 10% × 30 ÷ 365 = £493.15.
• Combined charge before other fees and any applicable VAT: £1,493.15.

If the same £60,000 remains drawn for 60 days, the illustrative discount charge becomes £986.30. This isolates the effect of time; it is not a complete two-month facility bill. Further sales, service fees and other charges would need to be included.

This is why the provider needs to understand debtor days, not just turnover. Ask for a forecast based on your own ledger and the provider’s actual charging method.

Factoring or invoice discounting: which offers better value?

Factoring usually includes customer collection support. Invoice discounting normally leaves credit control with your business, and many facilities are confidential.

The British Business Bank explains that discounting generally has a lower service fee because it does not provide the same day-to-day ledger management. That does not automatically make it the better choice.

If you have strong credit control and reliable records, discounting may fit well. If the owner spends Friday afternoons chasing invoices instead of running the business, factoring support may have a value that a fee comparison misses.

For the basic differences, read our factoring versus invoice discounting guide.

Will every invoice qualify for funding?

No. Availability depends on eligible invoices, customer credit limits and the provider’s advance rate. A large sales ledger is not necessarily a large pool of usable funding.

Disputed invoices, very old debts, overseas debtors, contract terms, retentions and a heavy reliance on one customer can affect eligibility. Construction applications and staged payments need particular care.

Compare usable availability after reserves and exclusions. An attractive headline advance percentage is less helpful if the invoices you most need to fund are outside the facility.

Seven questions to ask before accepting a quote

1. What does the service fee apply to, and what minimum charge applies?
2. What is the all-in discount rate today, and can it change?
3. How much funding would my current ledger actually release?
4. What happens if my largest customer pays late or disputes an invoice?
5. Are bad debts my responsibility, and what protection is included?
6. What security, guarantees and reporting obligations are required?
7. What will it cost to leave, and how much notice must I give?

Choose the facility around the cash-flow gap

Invoice finance normally suits credit sales to other businesses. If customers pay immediately, another funding structure may be more suitable. If the shortfall is caused by unprofitable trading, bringing cash forward will not repair the underlying margin.

Start with the reason cash is tight. Then compare the cost of funding with the work, payroll or growth opportunity it will support.

Explore invoice finance options or use the Business Finance Health Check. Sorbus Finance can help compare suitable facilities from its selected lender panel, without treating the cheapest headline percentage as the whole answer.

Sources and further reading

• British Business Bank: invoice finance, fee structures and eligibility
• British Business Bank: Small Business Finance Markets Report 2026

Sources checked on 12 October 2026. This article is general information, not a personal finance recommendation or tax advice. Finance is subject to status, affordability, lender criteria and agreement terms. Check current rules and obtain advice for your circumstances before committing.