Invoice finance rates in the UK have two components: a service charge (0.2–3% of annual turnover) and a discount charge (interest on the amount advanced, typically 1.5–3% above the Bank of England base rate for discounting; no lender we checked publishes a current factoring margin). With the base rate at 3.75% (September 2026), discounting rates on drawn balances run approximately 5.25–6.75%. Selective invoice finance (Kriya, Bibby Spot) charges a flat 1–3% per invoice with no monthly commitment. Total cost depends heavily on how much of your facility you use and how quickly your customers pay.
- Invoice finance has two cost components - A service charge of 0.2-3% of turnover plus a daily discount (interest) charge, about 5.25-6.75% a year on drawn funds for discounting at a 3.75% base rate
- Discounting is cheaper than factoring - Confidential invoice discounting service charges run 0.2-0.5% versus 0.5-3% for full-service factoring, which bundles in credit control
- You only pay for what you draw - The discount charge applies to the advanced balance, not the full facility limit, so cost tracks how much you actually use
- Advance rates reach up to 90% - Providers typically release up to 90% of invoice value, often within 24 hours, versus weeks of approval for a term loan
- Rates are negotiated, not published - Most whole-ledger providers quote individually, so compare the total cost illustration rather than a headline rate
How Invoice Finance Fees Are Structured
Invoice finance costs have two separate components billed together. The service charge covers administration and, for factoring, credit control, and is charged as a percentage of annual invoiced turnover, typically 0.2–3%. The discount charge is interest on the advance, typically expressed as a percentage above the Bank of England base rate and charged daily on the drawn balance. There may also be additional fees: minimum monthly charges, audit fees (£200–£500 annually), CHAPS transfer fees (£15–25 per draw), and notice period penalties. Always request the total cost illustration before signing.
Invoice Finance Rates by Provider UK 2026
Invoice finance rates are not published by most whole-ledger providers – they are negotiated based on turnover, sector, debtor quality, and advance rate. Indicative ranges: service charge 0.5–3% (factoring) or 0.2–0.5% (discounting); discount charge 1.5–3% above BoE base rate for discounting (3.75% as of September 2026), giving drawn rates of approximately 5.25–6.75%. No lender we checked publishes a current factoring margin, so ask for it in writing. Selective discounting (Kriya) charges 1–3% flat per invoice. Pricing for bank-backed providers such as NatWest FacFlow is quote-based and not published, and independent providers (Bibby, Skipton) quote on application.
| Provider Type | Service Charge | Discount Charge | Min. Turnover |
|---|---|---|---|
| Market guide, discounting (Novuna) | 0.2–0.5% | BoE + 1.5–3% | Varies by provider |
| Market guide, factoring (Novuna) | 0.5–3% | Margin over base, not published | Varies by provider |
| Bank-backed (NatWest FacFlow) | Quote-based | Quote-based | £300,000 (discounting) |
| Large independents (Bibby, Close Brothers) | Quote-based | Quote-based | None for Bibby factoring; £500,000 for Close Brothers |
| Selective (Kriya) | N/A | 1–3% flat per invoice | None stated |
How to Calculate Your Invoice Finance Cost
To calculate the true annual cost of invoice finance:
- Multiply your annual turnover by the service charge percentage to get the annual service cost.
- Estimate your average drawn balance (advance rate × average outstanding debtor book) and multiply by the discount rate (BoE base + margin) to get annual interest cost.
- Add any fixed fees (minimum monthly charge × 12, audit fee, CHAPS fees).
Illustrative example (not a quote): £500,000 turnover, 80% advance, £60,000 average debtor book. Service charge 1% = £5,000. Discount rate 7% on £48,000 average drawn = £3,360. Total = £8,360 per year, approximately 1.67% of turnover.
Invoice Finance vs Business Loan: Cost Comparison
Invoice finance is typically cheaper than an equivalent-size business loan for businesses that invoice on 30–60 day terms, because you only pay interest on what is drawn and for as long as it is drawn. A business with £500,000 turnover and 45-day payment terms might maintain £60,000 in invoice finance at an all-in cost of approximately £8,000–£10,000 per year. An equivalent term loan of £60,000 at 10% APR would cost £6,000 per year in interest – similar, but without the service charge administration benefit. For businesses with longer payment terms (60–90 days), invoice finance often becomes more cost-effective per pound of working capital released.
How to Reduce Invoice Finance Costs
The most effective ways to reduce invoice finance costs are:
- Improve your debtor quality – finance providers charge less when your customers have strong credit profiles.
- Reduce debtor days – faster-paying customers mean less time on the drawn balance, reducing the finance charge.
- Negotiate on service charge as turnover grows – most providers will review terms annually.
- Compare multiple providers – rates vary significantly by provider type (bank vs independent vs selective).
- Consider selective discounting (Kriya, Bibby Spot) if you only need occasional funding rather than a permanent facility.
The biggest hidden cost in invoice finance is debtor dilution – when invoices are disputed, credited, or paid short. Most providers deduct dilution from your availability, which effectively reduces the usable portion of your facility. Businesses with high dilution rates (above 5%) will find their effective advance rate significantly lower than the headline 90%, and providers may increase service charges to compensate for the administrative burden.
Switching provider can also yield savings. Existing clients of bank-backed providers should benchmark against independents every 2-3 years – the competitive landscape shifts as providers adjust their risk appetite and pricing models. Conversely, clients of independents paying higher margins may find better rates from bank-backed providers as their business matures and risk profile improves.
- Best Invoice Finance Companies UK 2026 – compare Bibby, Kriya, Novuna, Skipton, and Close Brothers
- Invoice Factoring UK – how factoring works, fees, and eligibility by sector
- Invoice Discounting UK – confidential discounting for businesses wanting to retain credit control
- Working Capital Finance – all cash flow financing options for UK businesses
- Best Business Loans UK 2026 – compare term loans, lines of credit, and alternative products
