Quick answer
Invoice finance costs vary because the pricing has several moving parts: a service fee on turnover, a discount margin on the funds in use, and sometimes minimum monthly fees or extras for credit protection. Two providers can quote very different headline numbers for the same business depending on how aggressive their service fee is, what debtor concentration they accept, and whether the facility is confidential or disclosed.
The four pricing components
Invoice finance pricing is rarely one number. Most quotes include a service fee, usually quoted as a percentage of turnover, which covers ledger management, collections support and platform access. On top of that sits a discount margin, charged on the funds you have drawn at any given time and usually expressed as base rate plus a spread.
There can also be minimum monthly fees, which apply when your turnover or drawn balance is low and the percentage fees would otherwise come in too small for the lender. Some providers add charges for credit protection, audit fees, and onboarding.
Why debtor quality changes the price
Your debtor book is part of the underwriting. A business invoicing blue-chip plcs on thirty-day terms is a much safer ledger than one invoicing small private companies on sixty-day terms with concentration in one or two customers. Lenders typically reflect that in the advance rate (how much of each invoice you can draw against), the service fee, and the credit limits they put on each debtor.
Sector also matters. Some sectors carry higher dilution risk, where credit notes and contra-trading mean the lender cannot fund the full invoice. Recruitment, construction, and certain wholesale categories often see different pricing to clean B2B services.
Disclosed vs confidential facilities
A disclosed facility (factoring) tells the debtor that an invoice finance provider is involved, and the provider often collects payments directly. A confidential facility (CID) keeps the arrangement invisible to the debtor; you continue to collect. Confidential facilities are usually priced higher because the lender is taking on more operational risk.
Selective and single-invoice products price differently again, often closer to a fee-per-invoice model rather than a turnover-percentage model. They can be cheaper in absolute pounds for businesses that only want to advance the occasional invoice.
How to compare two invoice finance quotes
The headline service fee can be misleading on its own. Two providers might quote 0.6% and 1.2% of turnover but produce very similar all-in costs once minimum fees and the discount margin are added. Ask each provider for a worked example using your real turnover and drawn-balance numbers.
Also check the contract length and notice period. A cheaper headline rate locked in for two years with a long exit notice can cost more across the life of the relationship than a slightly pricier but more flexible deal. Lenders typically build a margin into early-exit and termination terms.
Key points
- Pricing has three to four components, not one headline rate.
- Debtor quality and concentration drive a lot of the variation.
- Confidential facilities usually cost more than disclosed ones.
- Minimum monthly fees can dominate at low turnover.
- Compare worked examples on your own numbers, not headlines.
Finance types that may be relevant
The product categories below are commonly considered for this situation. Suitability is subject to lender underwriting and your trading profile.
Invoice Finance
Funding advanced against unpaid B2B invoices.
Unsecured Business Loan
Term loan or credit line repaid through fixed instalments.
Asset Finance
Finance to buy/refinance equipment, vehicles or machinery.
Related guides
Frequently asked questions
- Is invoice finance cheaper than an overdraft?
- Often yes for businesses with growing receivables, because the facility scales with sales. For static or seasonal businesses the answer is less clear-cut.
- What is the advance rate?
- The percentage of each invoice the lender will release immediately. Typically 70-90%, with the balance released when the debtor pays, minus fees.
- Do I have to put my whole ledger on the facility?
- Whole-turnover facilities require it, but selective and single-invoice products do not. The price reflects the difference.
- What is dilution?
- Dilution is the gap between the invoiced amount and what the debtor actually pays - credit notes, returns, contras and disputes. Higher dilution raises the cost of the facility.
Compliance note
Eligibility guidance only - not financial advice, not a loan offer, not a guarantee of approval.