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Understanding invoice finance costs
Compare the total cost of a facility, including its contractual commitments.
Service fees
A service fee covers the administration and management associated with a facility. With factoring, this can include sales ledger and collections support. The basis of calculation varies, so ask which turnover or invoices the percentage applies to.
Do not compare percentages without checking what each includes. The services, minimum charges and contract obligations may differ.
Discount charges
A discount charge relates to funding used and the time it remains outstanding. Ask whether it is linked to a reference rate, how it is calculated and when it is charged.
Slower customer payments may increase funding costs. Compare estimates using realistic collection times rather than assuming every customer pays on the due date.
Minimum fees and additional charges
Ask about minimum monthly or annual fees, setup costs, audit fees, additional payment charges and termination costs. Not every provider uses the same charging structure.
Check the minimum term and notice period. A facility that looks inexpensive at a particular turnover level may be less suitable if sales fall or you need to leave early.
The advance is not the fee
The portion of an invoice not initially advanced is not automatically the provider’s charge. The remaining balance is generally released after the customer pays, with agreed advances and charges accounted for.
Ask for a clear explanation of reserves, invoice exclusions and how your available funding balance is calculated. These affect usable cash even where they are not fees.
Request a comparison based on your business
Give each provider consistent information about turnover, ledger value, payment timing and expected funding use. Ask for the total estimated cost under those assumptions, together with all exclusions.
Compare the service and risk obligations alongside price. Read factoring versus discounting to understand the operational differences.
Explore your invoice finance options
Tell us about your business, your invoices and what you want funding to achieve.