Business Services
Compare invoice factoring
Invoice finance is priced with two separate fees, and comparing on either one alone will mislead you. You need both, plus the minimum charge.
Invoice finance releases cash tied up in unpaid invoices, typically advancing 80 to 90 per cent within a day or two and paying the balance, less fees, when your customer settles. It suits businesses that invoice other businesses on credit terms and grow faster than their cash allows.
The first decision is factoring versus discounting. With factoring, the lender runs your sales ledger and chases payment, so your customers know. With discounting, you keep collecting and it stays confidential, which lenders offer to more established businesses with solid credit control. Factoring costs more because it includes a service.
What it should cost
| What you are buying | Indicative UK cost |
|---|---|
| Service fee, percentage of turnover | 0.5% – 3% |
| Discount fee, on funds drawn | Base rate plus 1% – 4%, charged like interest |
| Typical advance rate | 80% – 90% of invoice value |
| Minimum monthly fee | £500 – £2,000, and often the sting |
| Set-up or arrangement fee | £500 – £3,000 |
| Bad debt protection, if added | 0.5% – 2% of turnover |
The service fee is charged on turnover whether or not you draw the funds. A quiet quarter can mean paying for a facility you barely used.
What changes the price
- Factoring or discountingFactoring bundles credit control and costs more. Discounting is cheaper and confidential but requires you to prove your collections process.
- Recourse or non-recourseWith recourse, if your customer never pays, you repay the advance. Non-recourse transfers some of that risk for a higher fee — read exactly which circumstances are actually covered, because the exclusions matter.
- Your customers' credit qualityYou are effectively borrowing against their ability to pay. A ledger full of large, creditworthy customers prices better.
- Concentration limitsMost facilities cap how much of the ledger can sit with one customer, commonly 20 to 30 per cent. If one customer is most of your turnover, much of your ledger may be ineligible.
- Contract length and exitTwelve-month minimum terms with three-month notice are common, and termination fees are common too.
How to compare properly
Take these to every supplier. The answers are usually more revealing than the prices.
- Ask for a total cost illustration in pounds, based on your real turnover and average debtor days, not a percentage.
- Get the minimum monthly fee, and check it against your quietest month rather than your average.
- Confirm the concentration limit and which of your customers would breach it.
- Ask what is excluded from the ledger: contractual debts, work in progress, export invoices, and customers in dispute are common exclusions.
- Get the notice period and any termination fee in writing before signing.
- Check the lender is a member of UK Finance and, if you are a small business, that you would have access to an independent complaints route.
Ready to compare invoice finance?
Compare Invoice Factoring is our dedicated site for this category, with the detail, local coverage and a quote form.
Common questions
Will my customers know?
With factoring, yes — the lender collects in your name and payment is redirected to them. With confidential invoice discounting, no.
Is it more expensive than an overdraft?
Usually, per pound borrowed. It also scales with your sales rather than being a fixed limit, which is why growing businesses use it when an overdraft would not stretch.
What if a customer does not pay?
Under a recourse facility, you repay the advance, typically after 90 to 120 days. Non-recourse or bad debt protection covers defined insolvency events — read which ones.
Can a business use it selectively?
Yes. Selective or spot factoring funds individual invoices without committing the whole ledger. It has a higher rate per invoice but no minimum fee, which suits occasional use.
Still deciding between options?
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