Invoice Discounting Costs & Fees Explained
Market Invoice is an independent UK invoice finance comparison site that ranks 87 UK invoice finance providers.
Invoice discounting costs two fees: a management fee of roughly 0.2-1% of the invoices you put through the facility (confidential facilities typically 0.3-0.5%), and a discount charge of 1.5-3% above the Bank of England base rate (3.75% since 18 December 2025) on the funds you draw. It is cheaper than factoring because you keep your own credit control. At confidential-facility rates, a £1.2m-turnover business drawing £85,000 typically pays roughly £8,000-£12,000 a year in core fees.
Formula: discount charge = funds in use x (base + margin) / 365 x days outstanding, plus a separate management fee on the invoice value notified. More detail + scope
This page covers
Invoice discounting fees UK: management fee, discount charge, the discounting formula, hidden extras, worked example, and how discounting pricing compares to factoring
Not covered here
Generic invoice finance costs across all products (see /guides/costs/), factoring vs discounting product choice (see /guides/factoring-vs-discounting/), lifetime cost projection (see /tools/lifetime-cost-calculator/)
The two core invoice discounting fees
Every UK invoice discounting facility is priced around the same two components. The management fee (some providers call it a service fee or administration fee) is a percentage of each invoice you notify to the facility. Because you keep running your own sales ledger and credit control, it is much lower than the equivalent factoring service charge: typically 0.2-1% of turnover against 0.5-3% for full factoring.
The discount charge is interest on the cash you actually draw, calculated daily on funds in use. UK providers price it as a margin over the Bank of England base rate, typically 1.5-3% over base. With base at 3.75% (since 18 December 2025), that means an effective annual rate of roughly 5.25-6.75% on drawn funds. You only pay it on what you draw: an unused facility accrues no discount charge, though minimum monthly fees may still apply.
Fee table: what each charge looks like in 2026
| Fee | Typical range | Charged on | Notes |
|---|---|---|---|
| Management fee | 0.2-1% of invoice value | Each invoice notified | Confidential facilities typically 0.3-0.5%; falls with turnover |
| Discount charge | 1.5-3% over base (3.75%) | Funds drawn, daily | Only on what you use; accrues until your customer pays |
| Arrangement fee | £500-£2,000 | Setup, one-off | Often negotiable or waived on larger facilities |
| Audit / survey fee | £500-£1,500 per audit | Annually or semi-annually | The provider's periodic check of your ledger and systems |
| Minimum monthly fee | £300-£1,000 | Quiet months | Floor on the management fee; test against your quietest quarter |
| CHAPS payment fee | £15-£25 per transfer | Same-day drawdowns | Free Faster Payments or BACS usually available |
| Termination fee | 1-3 months of average fees | Early exit | Check notice period; see our guide to exiting a facility cleanly |
The invoice discounting formula
Discount charge = funds in use x (base rate + margin) / 365 x days outstanding
Plus, separately: management fee = invoice value notified x management fee %
The discount charge behaves like overdraft interest: it accrues daily on your drawn balance and stops when your customer pays and the ledger clears. That means customer payment speed is the single biggest driver of your total cost. A ledger that pays in 30 days costs roughly half the discount charge of one that pays in 60 days, on the same drawn balance. To convert a quote into a comparable annual rate, use our APR equivalent calculator.
Worked example: £100,000 a month through a confidential facility
Take a business invoicing £100,000 a month (£1.2m a year) on a confidential invoice discounting facility with a 0.4% management fee, an 85% advance rate, a 2.5% margin over the 3.75% base rate (6.25% total), and customers paying in 45 days on average:
- Management fee: £100,000 x 0.4% = £400 a month, £4,800 a year.
- Funds available vs funds in use: with 45 days of invoices outstanding (about £150,000), the 85% advance makes up to £100,000 x (45/30) x 85% = £127,500 available. Most businesses draw less than the full availability, so assume average funds in use of about £85,000 (an illustrative figure: use your own average drawn balance).
- Discount charge: £85,000 x 6.25% / 12 = about £443 a month, £5,313 a year.
- Total core cost: about £843 a month, £10,113 a year, before one-off arrangement and audit fees.
As a share of turnover that is about 0.84%. The same business on full factoring at an illustrative 1.5% service charge would pay £18,000 a year in service charge alone before interest. That gap is the discounting discount: you are doing the credit control work yourself. Project the full multi-year picture, including minimum fees and exit costs, with our lifetime cost calculator.
How to keep invoice discounting costs down
Rates fall with turnover, ledger quality and competition. Businesses putting £1m+ through a facility with creditworthy customers and low dispute rates get the bottom of the ranges above. Get at least three quotes and compare them line by line (our quote comparison guide shows exactly how), challenge the minimum monthly fee if your volumes are seasonal, and ask for the arrangement fee to be waived. If a provider's audit fee looks high, say so: it is one of the most quietly negotiable lines on the tariff.
Also sanity-check the product itself. If your service charge quote is creeping above 1%, you are being priced like a factoring client: read our factoring vs invoice discounting comparison and our generic invoice finance costs guide to see whether the structure fits. For negotiating an existing facility down, see how to negotiate your service charge.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
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