The advertised rate is rarely the cost. An invoice finance facility charges you twice, once against turnover and once against the money you actually draw, with a minimum monthly fee sitting underneath both. This works out what a UK factoring or invoice discounting facility costs across a year, and what that is as a share of your turnover.
Invoice finance calculator
Built for UK factoring and invoice discounting. Separates the service fee from the discount fee, applies the minimum monthly charge where it bites, and converts the whole thing into a cost per pound of turnover. Nothing is sent anywhere and nothing is stored.
1. Your invoicing
2. The funding
3. The fees
The two fees that make up the cost
Almost every invoice finance quote has two charges in it, and they are calculated on entirely different things. Confusing them is the single most common reason a facility costs more than the business expected.
The service fee is a percentage of turnover. It pays for running the sales ledger, and under a factoring agreement it also pays for credit control and collections. It is charged on everything you put through the facility whether you draw against it or not. On a factoring facility it commonly runs between 0.6 and 1.5 per cent. On invoice discounting, where you keep the chasing in house, it is usually lower at 0.2 to 0.5 per cent.
The discount fee is the interest. It is charged on the money actually advanced to you, for the days it is outstanding, and it is quoted as a margin over Bank Rate. Two to four per cent over base is typical, wider where the sector or the customer book is harder work. Because it runs on funds drawn rather than on turnover, your debtor days move it directly. Customers who pay at 70 days cost you materially more than customers who pay at 40, on identical invoicing.
This is where most online invoice finance calculators go wrong. They apply the discount fee to turnover, which overstates the cost on a fast paying ledger and understates it on a slow one. The calculator above works out your average funds outstanding first, then charges the discount fee against that.
Why the minimum monthly fee decides more than the rate
Nearly every facility carries a minimum monthly charge. Below a certain level of invoicing, the percentage becomes irrelevant and you simply pay the minimum. For a smaller business this is frequently the number that actually sets the bill.
Take a business invoicing £400,000 a year on a 0.85 per cent service fee. That is £3,400 of service fee, or £283 a month. Against a £400 monthly minimum, the business pays £4,800 and the extra £1,400 buys nothing at all. A funder quoting 0.7 per cent with a £600 minimum looks cheaper on the rate and is considerably more expensive in practice.
Enter your own minimum in the calculator and it will tell you whether the percentage or the minimum is the binding constraint. If the minimum is binding, the only questions worth asking are what the minimum is and how quickly you expect turnover to grow past it.
Factoring against discounting on cost
Factoring costs more because you are buying a service as well as funding. The funder credit checks your customers, issues statements, chases payment and handles the allocation. For a business without a credit control function that is work you would otherwise be paying somebody to do, so comparing the two purely on fee is not a fair comparison.
Invoice discounting is cheaper on the service fee and confidential, meaning your customers are not told the facility exists. The trade is that you carry the collections yourself and the funder will want to see that you can. Most funders expect a track record, a reasonable turnover and proper systems before they will offer it, which is why a younger business often starts on factoring and moves across later.
CHOCCS sits between the two. You chase the money, the funder owns the ledger and the arrangement is still disclosed. The service fee usually lands closer to discounting than to factoring.
Run the same figures through the calculator twice, once at a factoring service fee and once at a discounting one, and the annual difference is normally clear enough to price the credit control work against it. Our pages on invoice factoring and invoice discounting set out how each one works in practice.
What the quote will not tell you
The two headline fees are the bulk of the cost but rarely all of it. These are the items that turn up on the statement rather than in the offer letter.
- Arrangement or facility fee. Charged at the start, and again at renewal on some agreements.
- Audit and survey fees. Periodic ledger audits, charged per visit, often several hundred pounds each.
- Disbursement and CHAPS charges. A few pounds per same day payment, which mounts up on a high volume ledger.
- Refactoring or disapproved invoice charges. Where an invoice ages past the funding period, typically 90 or 120 days, and is taken back out of availability.
- Concentration limits. Not a fee, but if one customer is more than 25 or 30 per cent of your ledger, the excess is usually not funded at all, so your real availability is lower than the advance rate suggests.
- Termination and notice. Minimum terms of twelve months with one to three months of notice are standard. Leaving early can mean paying the notice period out.
Our page on the costs of factoring goes through each of these with worked examples.
How to compare two invoice finance quotes
Put both through the calculator and compare the cost as a share of turnover rather than the rates. A percentage of turnover is the only figure that stays meaningful when one quote has a lower service fee and a higher minimum, or a keener margin and a longer funding period.
The effective annual rate on funds drawn is the second figure worth carrying across. It expresses the whole cost, fees included, against the money you actually receive, which puts an invoice finance facility on the same scale as a business loan or an overdraft for the first time. Facilities that look cheap at 0.85 per cent plus base rate plus three often come out in the low to middle teens once the whole cost is measured against the cash advanced.
Other calculators
If the funding is for wages while you wait to be paid, the payroll funding calculator works out the peak requirement for a recruitment agency including employer on costs. Where the question is whether a customer owes you interest for paying late, the late payment interest calculator applies the statutory rate and compensation.
For a comparison against other forms of borrowing, the business loan calculator converts a term loan into a comparable annual figure, and the merchant cash advance calculator does the same for a factor rate on card takings.
Get it priced across the market
Service fees, margins and minimums are negotiated case by case and none of it is published. Pricing depends on your sector, your customer book, your debtor days and how your last two years of accounts read. We hold that criteria across the market, so rather than guessing at the inputs, send us the ledger and we will come back with what is actually available.
Or try our other calculators.
This calculator is provided for illustration and general information only. It is not financial, tax or legal advice, not a quotation, and not an offer of finance. Figures depend entirely on the terms you enter, and the effective annual rate shown is an illustration rather than a funder figure. Bolton Business Finance Ltd is a commercial finance broker and not a lender, and is not authorised or regulated by the Financial Conduct Authority. We arrange non-regulated, business purpose commercial finance only, meaning lending to limited companies, and to sole traders and partnerships where the facility exceeds £25,000 and is wholly or predominantly for the purposes of their business. Always read the facility agreement in full before signing.