One of the first questions SME owners ask when exploring invoice finance is: how much does it actually cost? The good news is that invoice finance fees are generally straightforward, but they do vary depending on the type of facility, your turnover, your sector and the lender you choose.
This guide breaks down every cost you might encounter, with typical 2026 rate ranges, so you can go into any conversation with a lender fully informed.
Quick Answer
Most UK businesses pay a service fee of 0.5%–3% of turnover plus a discount fee of 1.5%–5% per annum. Total cost typically works out to 2%–8% of the invoice value, depending on your circumstances.
How invoice finance pricing works
Unlike a traditional business loan with a single interest rate, invoice finance pricing has two main components that work together.
Service fee explained
The service fee (or management fee) covers the administration of your facility. It's calculated as a percentage of your gross annual turnover and is charged monthly.
Discount fee explained
The discount fee (or financing charge) is the cost of borrowing the money itself. It's applied to the funds you actually draw down and calculated as an annual percentage rate against the outstanding balance, similar to interest on an overdraft. It can be linked to the Bank of England (BoE) Base Rate, meaning the cost of your facility can rise or fall as the Base Rate changes. Some providers offer a fixed discount rate instead, so it's worth checking how the rate is calculated before agreeing to a facility.
Other invoice finance fees
Some providers also charge additional fees for setup, annual audits, same-day payments or leaving the contract early, which we cover in more detail below.
Typical invoice finance rates
Here's a breakdown of typical rate ranges you'll see from UK invoice finance providers in 2026.
| Fee Type | Typical Range | How It's Charged |
|---|---|---|
| Service Fee | 0.5% – 3.0% of turnover | Monthly, as % of turnover |
| Discount Fee | 1.5% – 5.0% p.a. | Daily/monthly on drawn balance |
| Setup Fee | £0 – £500 | One-off, on facility setup |
| Same-Day Payment | £10 – £30 per transfer | Per transaction, if requested |
| Audit Fee | £200 – £500 p.a. | Annual ledger review |
| Early Exit Fee | 1–3 months' notice | If leaving before contract end |
Many modern providers, particularly for selective or spot invoice finance, have no setup fee and only charge when you use the facility. Always ask for a full cost illustration before committing.
Rates by facility type
Invoice factoring rates
Invoice factoring tends to sit at the higher end of the service fee range, typically 1%–3%, because the provider also manages your credit control and sales ledger. In exchange for paying slightly more, you offload the admin of chasing payments to the lender, a genuine time saving for smaller businesses without a dedicated finance team.
Typical total cost for factoring: 2%–6% of invoice value, depending on turnover, sector and debtor quality.
Invoice discounting rates
Invoice discounting is usually cheaper than factoring because you retain control of your own credit control. Service fees tend to sit between 0.5% and 1.5% of turnover. It's typically only available to businesses with a turnover of £500k or more and an established credit control function.
Typical total cost for discounting: 1.5%–4% of invoice value.
Selective and spot invoice finance rates
Selective invoice finance, where you choose which individual invoices to fund, is priced differently again. Instead of a service fee, providers typically charge a flat fee per invoice, often 1.5%–4% of the invoice value per 30-day period. There's no ongoing contract, which makes it more flexible but potentially more expensive per invoice if used regularly.
Example
You have a £10,000 invoice and use selective finance at a 2.5% fee. You receive £9,750 upfront. When your customer pays, the provider deducts the £250 fee. Total cost: £250, or 2.5% of the invoice value.
What affects your invoice finance rate?
Lenders don't apply a one-size-fits-all rate. Your specific rate will depend on a number of factors:
- Annual turnover — higher turnover often means lower service fees as a percentage
- Sector — some industries, such as construction and recruitment, attract slightly higher rates due to perceived risk
- Debtor quality — larger, creditworthy customers mean better terms from lenders
- Number of invoices — higher volumes of smaller invoices cost more to administer
- Facility size — larger facilities tend to attract lower fees
- Credit history — a clean credit history helps you access better rates
- Bad debt protection — adding this increases cost but protects you against customer insolvency
Invoice finance vs other finance: cost comparison
How does it compare?
Let's compare invoice finance cost and speed against other common SME finance options.
| Finance Type | Typical Cost | Speed |
|---|---|---|
| Invoice Finance | 2%–8% of invoice value | 24–48 hours |
| Business Overdraft | 8%–20% EAR | Existing facility |
| Business Loan | 6%–25% p.a. | 1–5 days |
| Merchant Cash Advance | 1.1–1.5 factor rate | 24–48 hours |
For businesses sitting on significant unpaid invoices, invoice finance is often the most cost-effective option, because the borrowing is secured against money already owed to you rather than future earnings or assets.
Hidden costs to watch out for
Concentration limits. If too much of your ledger is tied up with one customer, often capped at 30%–50%, the lender may not fund those invoices.
Minimum usage fees. Some facilities charge a minimum monthly fee even if you don't draw anything down. Check whether there's a floor on charges.
Recourse vs non-recourse. With recourse factoring, if your customer doesn't pay, you must repay the advance. Non-recourse costs more but protects you. Make sure you know which you're getting.
CHAPS or same-day transfer fees. If you need funds the same day, most providers charge £10–£30 per CHAPS transfer. BACS payments, arriving the next day, are usually free.
Annual audit fee. Many providers carry out an annual review of your sales ledger and charge £200–£500 for this.
How to get the best invoice finance rate
- Compare at least three providers — rates vary significantly and lenders don't always advertise their best terms upfront
- Use a broker — we approach multiple lenders simultaneously and negotiate on your behalf at no cost to you
- Provide clean financials — the cleaner your books and the stronger your debtors, the better your rate
- Ask for a full cost illustration — not just the headline rate, but the total annual cost including all fees
- Negotiate the exit terms — a shorter notice period or waived exit fee gives you more flexibility
- Review annually — your business will grow and your rate should improve over time
Still unsure what a fair rate looks like for your business? Don't worry, we can help you compare and find the most competitive terms available.
Apply today for your free no-obligation quotes.
Frequently asked questions
Most UK businesses pay a combined cost of 2%–8% of the invoice value, made up of a service fee (0.5%–3% of annual turnover) and a discount fee (1.5%–5% p.a. on drawn funds).
Generally yes, factoring typically costs more because the provider also manages your credit control. However, the time saving can outweigh the extra cost for smaller businesses without a dedicated finance team.
Many providers charge no setup fee. Some charge a one-off arrangement fee of up to £500. Always ask for a full cost illustration that includes all fees before signing.
Yes, though you'll need to give notice, typically 30 to 90 days, and there may be an exit fee. We recommend negotiating exit terms upfront before you sign.
Invoice finance itself doesn't directly impact your credit score. A soft search is typically conducted during the matching process, which doesn't leave a mark on your credit file.
