How Much Does Invoice Finance Cost? Complete UK Breakdown (2026)

Invoice finance costs vary significantly depending on your sector, business size, customer creditworthiness, and the type of facility you choose. As a general guide, expect total annual costs between 1% and 4% of your annual turnover.

For a business turning over £500,000 per year, this means £5,000 to £20,000 in annual fees. Whether that represents good value depends on how much cash flow improvement you get — and what the alternative costs would be (late payment penalties, missed supplier discounts, lost growth opportunities).

How invoice finance costs work

Invoice finance pricing has two main components:

1. Service fee (admin and collections) — a percentage of your annual turnover, charged monthly or quarterly
2. Discount charge — interest on the cash advanced, calculated daily from advance to customer payment

Both charges apply simultaneously. The service fee is predictable (you know your turnover); the discount charge varies based on how long customers take to pay.

Service fee (factoring fee)

The service fee covers the provider\'s administration costs, checking if your customers are likely to pay, and (for factoring) chasing customers for payment. It\'s typically expressed as a percentage of your annual turnover and charged monthly or quarterly.

Typical service fee ranges (as % of turnover):

• Invoice discounting: 0.2% - 1.0% (cheaper because you manage collections yourself)
• Invoice factoring: 0.75% - 3.0% (higher because provider manages credit control)
• Spot/selective factoring: 1.5% - 5.0% (most expensive but most flexible — you choose individual invoices)

For a £600,000 turnover business using whole-turnover factoring at 2% service fee, the annual cost is £12,000 (£1,000/month).

Discount charge (interest on funds advanced)

The discount charge is interest on the cash the provider advances. It\'s calculated daily from the day you receive funds until your customer pays.

How it\'s calculated:

Discount charge = (Bank of England base rate + provider margin) × cash advanced × days outstanding ÷ 365

Typical margins over base rate:

• Low-risk sectors (recruitment, professional services): 2-3% over base rate
• Medium-risk sectors (wholesale, manufacturing): 3-4% over base rate
• Higher-risk sectors (construction, haulage): 4-6% over base rate

With Bank of England base rate currently at 4.5%, total discount charge rates range from 6.5% to 10.5% annually.

Typical rates by sector (2026)

Different sectors face different risks and payment patterns, which affects pricing and advance rates.

Why construction and haulage cost more:

• Higher default risk (smaller customers, project-based work)
• Longer payment terms (60-90 days common)
• Retentions (10-20% of invoice value held back for months)
• Disputes over quality/completion more common

Why recruitment gets better rates:

• Customers typically larger businesses with good credit
• Invoices are straightforward (hours worked × rate)
• Payment terms predictable (30-45 days)
• Lower dispute rates

What affects the cost?

1. Your sector

As shown above, recruitment and professional services get the best rates. Construction and haulage face higher charges due to risk profile.

2. Your turnover

Larger businesses can negotiate better service fee rates. A £5 million turnover business might pay 1.2% service fee; a £250,000 business might pay 2.5% for the same facility type.

3. Customer creditworthiness

If you invoice blue-chip companies or public sector bodies, expect better advance rates and lower discount charges. Invoicing small businesses with poor credit increases risk and cost.

4. Payment terms and actual payment behaviour

30-day payment terms with customers who actually pay in 30 days = lower cost. 60-day terms with customers who pay in 90 days = significantly higher discount charges.

5. Invoice concentration

If one customer represents more than 30% of your turnover, some providers view this as higher risk (if that customer fails, you fail). Diversified customer base = better terms.

6. Finance type

• Invoice discounting: Cheapest (you manage collections)
• Whole-turnover factoring: Mid-range (provider manages collections, all invoices submitted)
• Spot/selective factoring: Most expensive (flexibility premium — you pick individual invoices)

Worked examples

Hidden costs to watch for

Beyond the service fee and discount charge, some providers add additional charges:

• Setup/arrangement fees: £0-£2,000 (one-off)
• Credit checking fees: £10-£50 per new customer credit check
• Early termination penalties: Can be 3-6 months\' fees if you exit before minimum term
• Dormancy fees: Charged if you don\'t submit invoices for a period (e.g., £200/month)
• Excess concentration charges: If one customer exceeds a % threshold
• Late payment fees: If your customer doesn\'t pay within a certain period (e.g., 90 days)
• Legal/recovery costs: If the provider needs to pursue a non-paying customer

How to compare quotes from different providers

When you have multiple quotes, compare like-for-like:

1. Calculate total annual cost using a realistic scenario (your actual turnover, typical payment terms, average days customers take to pay)
2. Check advance rates — a lower-cost provider with 70% advance might release less cash than a higher-cost provider at 85%
3. Understand contract length and exit terms — a cheap deal locked in for 3 years might end up expensive if your circumstances change
4. Ask about all additional fees — setup, credit checks, dormancy, termination, late payment penalties
5. Check what\'s included — does factoring include full collections management or just invoice notification?
6. Verify credit limits — will they finance all your customers or exclude some due to poor credit?

Frequently asked questions