Discount fee (invoice finance)

Invoice finance pricing has two main components: a service fee covering ledger administration, and a discount fee covering the cost of the cash actually advanced. The discount fee functions like interest on a revolving credit line — it is calculated daily on the funds drawn down, not on the headline facility size. Typical UK margins sit at around 2 to 4 percentage points over base rate or SONIA for confidential invoice discounting on a mid-sized ledger, and higher for smaller or higher-risk facilities.

Because discount fees accrue only on funds in use, the all-in cost of an invoice finance facility scales with how heavily the business draws. A business that uses 60 per cent of its available prepayment will pay far less in discount fees than one that draws the full 90 per cent every month. This makes invoice finance materially cheaper than a fully drawn term loan for businesses that only need bridging cash some of the time.

Discount fees are usually deducted automatically from each settlement when the underlying invoice is paid by the customer. UK borrowers should always look at the headline discount fee, the index it tracks, and any minimum-fee floor that effectively raises the cost when the facility is lightly used.