The true cost of invoice finance: discount fees

2 min read

Two feesService + discount

Short usageHigh effective APR

Compare annualisedNot the headline

Invoice value (£)

Advance rate (%)

Discount/service fee (% of invoice)

Days until customer pays

Estimates cash advanced and the cost of factoring a single invoice. Provider terms vary.

The two charges

Invoice finance typically carries a service fee (a percentage of turnover, for running the facility) and a discount charge (interest on the funds you draw, often quoted over a benchmark). Both are usually small percentages — but they compound into a real cost.

Why short usage raises the effective rate

You draw against an invoice only until it is paid — often 30 to 60 days. A 2% discount over a month is roughly 24% annualised. Because the cash is used briefly and repeatedly, the effective annual rate on the funds can be high.

Factoring vs discounting

Factoring includes credit control and costs more; discounting leaves you collecting and costs less. Confidential facilities keep customers unaware. Each changes the service fee — see the answer comparing factoring vs discounting.

Turn it into an APR

Add the service fee and discount charge over your typical usage period, then annualise, to compare with a revolving facility. The calculator below helps.

Where Credicorp fits

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.

See invoice finance explained and the invoice finance calculator.

Frequently asked questions

Why does invoice finance look cheap but cost more?

Because the two fees are small percentages, but the cash is used only briefly against each invoice. Annualised, the effective rate can be much higher than the headline.

Is factoring more expensive than discounting?

Usually, because factoring includes credit control. Discounting is cheaper but you chase payment yourself. Weigh the fee difference against the admin saved.

How do I compare it with an overdraft?

Annualise the invoice-finance fees over your usage period and compare with the overdraft’s effective annual rate. Do not compare the headline percentages directly.