Invoice Factoring Cost Calculator 2025/26
Calculate the true cost of invoice factoring vs invoice discounting — including service charge, discount rate, advance rate and bad debt protection. Understand the effective APR and net financing cost compared to a bank overdraft before signing a factoring agreement.
Key Inputs
- Monthly invoice volume (£)
- Typical customer payment terms (days: 30, 60, 90)
- Advance rate (typically 80-90% of invoice value)
- Service charge (typically 0.5-2.5% of invoice value per month)
- Discount rate (typically 1.5-4% per annum on funds drawn)
- Bad debt protection included? (adds approximately 0.3-0.8%)
What You'll Get
- Cash received immediately (advance amount)
- Total annual cost of factoring facility (£)
- Effective APR
- Net financing cost vs bank overdraft comparison
Important Notes — 2025/26 Rates & Caveats
Typical UK invoice factoring costs 2025/26: service charge 0.75-2.5% of invoice value (covers credit control and administration); discount rate 2-4% per annum on funds drawn (the interest equivalent); bad debt protection 0.3-0.8% if included. Invoice discounting is cheaper (no service charge) but you manage credit control in-house and need a strong debtor book. Most factors require minimum monthly turnover of £50,000 and B2B invoices. Contracts are typically 12-24 months. Always compare the effective APR — factoring can be expensive if customer payment terms are long.
Frequently Asked Questions
What is the difference between invoice factoring and invoice discounting?
In invoice factoring, the factor takes over credit control — they send statements, chase payment and collect from your customers. In invoice discounting, you keep credit control in-house and manage your own debtor relationships, but access cash against outstanding invoices. Factoring is more suitable for smaller businesses that lack a credit control function; discounting is preferred by larger businesses that want to maintain customer relationships and keep the arrangement confidential.
What percentage of invoice value do factors advance?
Typically 80-90% of the invoice value is advanced immediately upon receipt of the invoice. The remaining 10-20% (the reserve) is released when the customer pays, minus the factor's fees. The advance rate depends on the quality of the debtor book — established customers with good payment histories attract higher advance rates. Some specialist factors advance up to 95% for strong debtors.
Is invoice factoring suitable for all businesses?
Invoice factoring is most suitable for B2B businesses that issue invoices with payment terms of 30-90 days and have reliable business customers. It is typically not suitable for: B2C businesses (consumers rather than businesses); businesses with very small invoice values (under £1,000 per invoice); businesses with very short payment terms (under 14 days); or businesses with a history of invoice disputes. Construction businesses and those with contract-based billing may face restrictions from factors.
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