Invoice finance rates in the UK have two components: a service charge (0.1–3% of annual turnover) and a discount charge (interest on the amount advanced, typically 1.75–4.5% above the Bank of England base rate). In 2026, with the base rate at 3.75%, effective annual rates on drawn balances run approximately 5.5–8.25%. 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 0.1-3% of turnover plus a daily discount (interest) charge, giving all-in rates of roughly 5.5-8.25% on drawn funds in 2026
- Discounting is cheaper than factoring - Confidential invoice discounting service charges run 0.1-0.5% versus 0.5-2.5% 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 - Bank-backed providers price discount charges from BoE base + 1.75%, while independents sit higher but accept more businesses
How Invoice Finance Fees Are Structured
Invoice finance costs have two separate components billed together: (1) a service charge covering administration and (for factoring) credit control – charged as a percentage of annual invoiced turnover, typically 0.5–3%; and (2) a discount charge (interest on the advance) – typically expressed as a percentage above the Bank of England base rate, 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 0.5–2.5% (factoring) or 0.1–0.5% (discounting); discount charge 1.75–3.5% above BoE base rate (currently 3.75%), giving drawn rates of approximately 5.5–7.25%. Selective discounting (Kriya) charges 1–3% flat per invoice. Bank-backed providers (NatWest FacFlow, Barclays Invoice Finance) typically offer better discount rates (BoE + 1.75–2%) in exchange for higher service charges. Independent providers (Bibby, Skipton) offer more flexible terms but slightly higher discount rates.
| Provider Type | Service Charge | Discount Charge | Min. Turnover |
|---|---|---|---|
| Bank-backed (NatWest, Barclays) | 0.1–0.5% | BoE + 1.75–2.5% | £300,000+ |
| Large independents (Bibby, Close Brothers) | 0.5–1.5% | BoE + 2–3.5% | None–£500,000 |
| SME specialists (Novuna, Skipton) | 0.75–2.5% | BoE + 2.5–4% | £50,000–£300,000 |
| Selective (Kriya) | N/A | 1–3% flat per invoice | £100,000 |
How to Calculate Your Invoice Finance Cost
To calculate the true annual cost of invoice finance: (1) multiply your annual turnover by the service charge percentage to get the annual service cost; (2) 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; (3) add any fixed fees (minimum monthly charge × 12, audit fee, CHAPS fees). Example: £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: (1) improve your debtor quality – finance providers charge less when your customers have strong credit profiles; (2) reduce debtor days – faster-paying customers mean less time on the drawn balance, reducing the finance charge; (3) negotiate on service charge as turnover grows – most providers will review terms annually; (4) compare multiple providers – rates vary significantly by provider type (bank vs independent vs selective); (5) 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
