Invoice discounting usually involves a charge for the funds borrowed and a separate service fee. Minimum charges and one-off fees can also apply. Compare the total cost in pounds, using the same sales and borrowing assumptions for each provider. Examples on this site use assumed figures; they are not quotations or market averages.
Discount charge
This is the financing cost. It may be expressed as a margin above a reference rate and charged against the funded balance. Establish the reference rate, how changes are passed through, the day-count basis and when charges start and stop. Ask whether other debits on the current account also attract a charge.
For a simple illustration, £40,000 drawn for 45 days at an assumed total annual rate of 9% costs about £443.84 on a 365-day basis. This is £40,000 × 0.09 × 45 ÷ 365. A real facility may use a different basis and a changing daily balance.
Service fee and its charging base
The service charge may be linked to invoice turnover, rather than the amount drawn. Ask whether the quoted percentage applies to all assigned sales, only funded invoices, VAT-inclusive values or another contractual base. A modest percentage applied to a large turnover can materially change the annual bill.
For example, a hypothetical 0.5% fee on £1 million of chargeable annual invoice turnover is £5,000, even if average drawings are much lower. This is an arithmetic example, not a suggested rate.
Minimum charges
A minimum service fee can make low usage expensive. If a quotation calculates a £200 monthly fee but specifies a £400 monthly minimum, budget £400 for that period. Model the minimum over quiet months as well as your busiest period. Check whether the minimum is monthly, quarterly or annual; our calculator uses a monthly assumption.
Other items to request in writing
- Setup, legal, documentation and arrangement costs.
- Audit, survey, renewal and integration charges where applicable.
- Transfer, payment and currency costs.
- Credit-protection premiums, exclusions and claim excesses.
- Notice periods, minimum term and early termination charges.
- VAT treatment of each relevant fee; do not assume one treatment covers all components.
Compare the same business scenario
Give every provider the same forecast: sales subject to the service fee, average and maximum borrowing, expected customer payment times and the length of the agreement. Ask for the estimated annual cost in pounds and a separate calculation of the cash available when the facility starts. Check how both figures change if sales fall or customers pay later.
A lower rate is not the complete answer
A quotation with a lower discount margin can still produce a higher overall cost if it has a higher service minimum or funds less of your ledger. Also compare reporting effort and customer eligibility. A facility that is cheap on paper but unavailable when a major customer pays late may not meet the need.
Use our calculator for a transparent estimate, then replace every assumed input with the provider's written terms. It is not an APR calculation and should not be presented as one.
Sources and verification
Published material checked on 24 October 2026. Provider terms can change; confirm them before applying. Examples and comparison methods are our own illustrations.
