Invoice Finance | Factoring | Invoice Discounting | Selective Factoring | Spot Factoring
Here we take a look at the key Invoice Finance Costs.
Invoice Finance has many different variations listed above. It is a great solution for many businesses and has increased in popularity over the last 20 years.
The costs for Invoice Finance has many different variables and so it is often difficult to provide an quick cost. This is one of the reasons why there are no cost comparison websites which you can use directly.
Instead to obtain a cost comparison you will either have to speak with each individual lender, or to use the services of a Invoice Finance broker who can do this quickly for you.
The main fee for an Invoice Finance facility is the service fee. This fee is normally a set percentage of the invoice value. It is a set fee and remains the same until the facility is cancelled or renewed.
The service fee includes the cost of managing your facility, providing cash up front for your invoices and if Factoring a credit control service.
Service Fee example
Let’s say you raise a £10,000 invoice. The lender has a service fee of 3% and they provide you with 85% in advance for your invoices.
The fee would therefore be £300. This is normally taken out at the point the funding is provided. This means that the lender will provide you with £8,200 up front (85% of the invoice value = £8,500 – £300).
The remaining £1,500 (15%) which had been retained is then paid to you when the debtor pays. This means you receive a total of £9,700 against your invoice (£8,200 + £1,500) with £300 in fees.
Service Fees can be as low as 0.1% per invoice and as high as 5% per invoice. The service fee is usually charged on a turnover scale, therefore the lower the turnover the higher the fee.
The discounting fee is quite a simple fee to understand. In simple terms it is a fee for borrowing the lenders money. This is charged as a set percentage and remains fixed until the facility is cancelled or renewed.
The discounting fee is normally charged as a set percentage over the Bank of England base rate or LIBOR.
The discounting fee is normally charged on a monthly basis. It is either a percentage of the daily borrowings or can usually be based on the average monthly borrowings.
Discounting Fee Example
Using the example above and the lender advances £8,200 up front. This funding is put into an account for you to use as and how you require. If you do not borrow any of the funds then you do not pay the discounting fee.
If you choose to borrow any of the funding then you will pay the discounting fee. Let’s say that your fee is 4% per annum (3.25% over base rate at 0.75%). This means you would pay 0.33% per month against anything you borrow from the facility (4% / 12 = 0.33%)
So let’s say in a month you borrowed £5,000 on average from the facility you would pay only £16.50 in discounting fees. (£5,000 * 0.33%)
Other Invoice Finance Charges
There are also many other Invoice Finance costs which are often hidden within the facility terms. Many businesses are often drawn to the service fee and discounting fee that they do not take the following fees into consideration:
- Arrangement Fees
- Bad Debt Protection
- Same day transfer fees
- Renewal Fees
- Refactoring Fees
- Credit Notes Fees
- Facility change Fees
- Overpayment Fees
- Termination Fees
As a business owner if you do not consider all the above additional costs the facility which you thought was good value soon turns out to be expensive.
By using the services of a good Invoice Finance broker like All Star Funding Solutions you can be assured that all the costs are considered.
Compare Invoice Finance lenders and get FREE quotes
The above information should provide a better understand of Invoice Finance and the associated costs. Each lender will have a base cost and will adjust this depending on the business and the Invoice risk.
We would recommend using a Invoice Finance broker as we can often negotiate the best rates. We can also find you the best deal from our panel of over 30+ lenders based in the UK.
Click below and complete a simple from to get quotes from the top Invoice Finance companies.
Alternatively if you would like to talk directly to one of our experts please call 0161 8211478
As members of the Financial Intermediary and Broker Association you can be assured of a great service. https://www.fiba.org.uk/