Tom Stapley
Tom Stapley
Strategic Partnerships Manager
Understanding Invoice Finance

Invoice finance costs: how to understand fees and compare solutions

March 24, 2023 | 9 minutes

If you’ve researched invoice finance costs and are comparing various solutions, you might have ended up with more questions than answers because:

  • There’s a lack of fee transparency between invoice financing solutions, with some providers charging hidden fees they’re not quoting up front.
  • Invoice financing can be complicated. It’s a very specific business product and there’s no comparable consumer equivalent, meaning it’s generally less understood – plus, the application process often isn’t straightforward.
  • It’s time consuming to research fees and attempt to compare options. You have to do quite a bit of work to get the information you need, and it’s still not a straight comparison.

In this article, we’ll be breaking down:

  1. How invoice financing providers charge fees
  2. How to compare invoice financing solutions
  3. How we charge fees at Satago
  4. What else you get with the Satago platform

Note: For invoice financing with clear, transparent pricing and no hidden fees, plus a range of tools to help you set up good processes and streamline your cash flow, get started with Satago today.

How invoice financing solutions charge fees

Invoice finance costs will vary depending on the type of invoice finance product selected. Most of the complaints we hear about other invoice finance providers relate to the hidden fees the SMEs weren’t aware of when they applied.

Here’s a quick overview of the different types of fees often associated with invoice finance (note: some providers use ‘charge’ instead of ‘fee’, but we’re using ‘fee’ throughout for consistency):

  • Service fee: This includes management, collections, and administration costs and is usually calculated as a percentage (typically 0.75-2.5%) of your company’s total revenue.
  • Discount fee (sometimes known as an interest fee): This is charged as a percentage of every pound of turnover through the facility or as a percentage of the overall funding limit, depending on the provider. Typically, this is 1%-3% above the base rate.
  • Arrangement fee: Some providers charge an initial arrangement fee to set up the invoice finance facility.
  • Renewal fee: The annual cost some providers charge for renewing your facility after 12 months.
  • Refactoring fee: Some factoring companies apply refactoring fees to invoices that exceed the time period outlined in your agreement, until they’re paid. It’s usually charged as a percentage of the value of the invoices.
  • Termination fee: Some companies require you to sign a contract for a specific length of time, and will charge a termination fee if you end the contract early.

Different invoice finance options charge fees in different ways:

  • Full or whole book invoice finance: With full invoice financing, you apply for a set amount of time, usually 12 months, and finance all your invoices in that period. The typical fees are: service fee, discount fee, arrangement fee, and a renewal fee after 12 months. There might then be hidden ancillary charges for all kinds of other things, such as payment transfers, holding the funds in a trust account and re-factoring fees to name a few examples. The ancillary charges are what can add up.
  • Single or selective invoice finance: With single or selective invoice finance, you choose the invoices you want to finance. There’s no contract and no minimum obligation to finance on a month to month basis. You pay for it as you use it, with fees charged per invoice or per amount borrowed. Fewer providers offer selective invoice financing.

Learn about the different types of invoice financing (including invoice discounting and factoring) in this article: How does invoice financing work?

Example: a digital agency uses single invoice factoring

A digital agency has just won an important new contract, but the agency owner knows this will be more work than the current staff members can manage.

She needs to invest in extra staff and equipment to complete the job but with her current clients taking up to three months to pay their invoices, she currently can’t cover these additional costs.

The owner decides to finance an invoice worth £10,000 using a single invoice finance facility.

She receives an advance of 85% at an interest rate of 2% per month. She uses the £8,500 to buy equipment for a newly hired digital designer who will work on the new contract.

At the end of the month, her client pays her the £10,000 she is owed, she repays the lender £8,500 plus the £170 interest fee and keeps the remaining £1,330.

In this case, using single invoice finance allowed the agency owner to fund new business and scale her company.

How to compare invoice financing solutions

It can be tricky to compare invoice financing companies, as it isn’t a case of comparing like for like. It’s also a very specific business product, so it can be hard to understand pricing as there’s no equivalent product for a consumer that’s not business-related.

This makes some of the terminology hard to understand, and this isn’t helped by the fact that different companies use different names for their products and fees. That’s where a business finance broker can be really helpful, as they’ll make sure you understand all the aspects of the product and will make sure you’re getting the most appropriate deal for your business.

Since there’s no complete invoice finance comparison tool, here’s a recommendation of steps to do it yourself:

  1. Work out broadly how much funding you need based on your turnover and credit terms.
  2. Start with one provider and work out how much the funding you need would cost as a percentage of your turnover for the year. You’ll need to try and consider the potential additional costs in this figure, which you may have to guess for the providers that don’t explain these up front.
  3. Do this for each provider you’re considering to see which is the cheapest option.

Other questions to consider when you’re comparing providers include:

  • How easy is it going to be to manage the facility?
  • What kind of service do you think you’ll get? (This is where recommendations or broker assistance can help as brokers have a good feel for the market.)
  • Do you want to finance every single invoice, a few, or just one?

How we charge fees at Satago

At Satago, we do invoice financing differently to the vast majority of providers: 

  • No hidden fees: We pride ourselves on clear, transparent pricing, which means you’ll have none of the additional hidden costs you could only guess at in the comparison example given above. Regardless of the product you choose, you only pay what you’re quoted.
  • Quickly find out if you’re eligible: The Satago platform integrates with your accounting software and uses Open Banking data as part of its eligibility matrix. This means you can find out if you’re eligible for invoice financing in under 2 minsand reduces the need to send us lots of documents such as PDFs or bank statements.
  • Start with selective invoice financing: With selective financing, you pay for what you need, with no minimum and no contract tying you in long term. Our standard pricing on selective invoice financing is 2-3.5% per 30 days on advancement, and is driven by risk scoring. Selective financing can scale with your business, although full invoicing financing can be more cost-effective in the long term – but only if you need to finance all your invoices. Satago is the only provider that offers both selective and full invoice financing and allows you to switch between the two seamlessly.
  • Full ledger invoice finance: Full invoice finance is bespoke and depends on a number of elements, including the size of the facility you’re looking for. Pricing includes an arrangement fee, a monthly service fee, and an interest fee – absolutely no hidden disbursement fees. We charge interest as a percentage of the funding limit, whereas most providers do it as a percentage of turnover through the facility. This gives you the option to cap the facility. For example, you might have a business with a sales ledger averaging £500,000, but you know you’ll only ever need a maximum of £100,000 out of that ledger. Why pay a service fee on every pound of turnover through your facility, when you’re never going to need the full amount? Paying a percentage of a capped facility is a lot more cost-effective and works well if you don’t need the maximum amount you can borrow.
  • Flat monthly fee to use Satago’s other tools: If invoice finance isn’t for you, then we offer three product tiers to access our other features, such as credit control, credit reports and risk insights. These costs are fixed and won’t change month to month. You can learn more here: Satago pricing

To find out exactly what the fees will be for your business with Satago invoice finance, get in touch so we can run through the details of your business needs and give you a tailored quote.

Why pay a service fee on every pound of turnover through your facility, when you’re never going to need the full amount? Paying a percentage of a capped facility is a lot more cost-effective and works well if you don’t need the maximum amount you can borrow.

Our standard pricing on selective invoice financing is 2-3.5% per 30 days on advancement, and is driven by risk scoring. Full invoice finance is bespoke and depends on a number of elements, including the size of the facility you’re looking for.

To find out exactly what the fees will be for your business with Satago invoice finance, get in touch so we can run through the details of your business needs and give you a tailored quote.

How to get started with Satago

If you’re ready to get started with Satago, there are three ways to do it:

  1. Give us a call: if you understand the product and know what you’re looking for, this is the quickest way to get set up.
  2. Sign up on the website: When you do this, we’ll be notified and will get in touch to discuss your options and give you a quote.
  3. Go through a broker: If you don’t know which option would be best for you, it might be best to go through a broker.

When does it make sense to use a broker?

  • If you want to be sure you’re choosing the most appropriate solution and lender: Most brokers have a whole market knowledge of the different products and contacts within those products with different lenders. They’ll direct you to the most appropriate solution, and they’ll then find you the most appropriate lender for that solution. Different lenders vary, even within a product, so the one that suits your business best depends a lot on your needs: what your funding requirement is, if you need selective or full turnover, if you need a specialist product for recruitment, etc.
  • You have questions: The best broker will sit down with you, understand requirements and assess the best option for your business.
  • You’re not sure what information you need for your application: A good broker will know what the lender expects so they can get started quickly.
  • You want someone to manage the application process from start to finish.

You may like: How Satago is changing the invoice financing game with embedded finance

What else do you get with Satago?

Satago is a complete cash flow management platform. There’s much more added value than just invoice finance, with tools that can help you get into a position where invoice finance becomes a safety blanket, rather than a regular part of your monthly finances.

Get paid faster with our customisable credit control system

Invoice financing is a quick way to solve the issue of a cash flow gap, but how can you set up systems to fix the fundamental issue and have your customers get into the habit of paying you sooner? The frustrating truth is paying outstanding invoices often gets forgotten – however a well-timed reminder is often all it takes to nudge your clients into action.

The credit control tools in the Satago platform can help you send your invoices and unpaid invoice reminders at the right time to help you get paid more quickly, with a suite of fully customisable, automated emails available as part of each Satago tier.

You can alter the content of the email and the sending schedule to make sure the customers who need fewer reminders don’t feel hassled and those who are less reliable get more emails with increasingly strict language.

The emails you can send with Satago are:

  • Invoice reminders before the due date.
  • “Thank you for paying early” emails.
  • Late payment invoice reminders that automatically include late payment fees.
  • Grouped reminder emails.

Grouped reminder emails, which combine all the invoices into one email, are particularly useful if your client has multiple invoices due. Using them means your customers aren’t bombarded with emails about individual invoices, and taking care of these little details can really help to nurture your existing customer relationships.

Quickly check the creditworthiness of new clients are with risk insights

In an ideal world you’d know up front how good a new client is at paying invoices on time and how creditworthy they are as a client – before you begin a working relationship with them.

Fortunately that’s exactly what you get with Satago risk insights, so you know what you’re likely to get when you work with a new client and can plan how to manage their credit control effectively from the beginning.

Inside Satago, you’ll have access to three screens including:

  1. Credit checks: Here you can see credit information on prospective or existing clients, as well as a certain number of complete credit reports powered by a credit search platform each year. (The exact number depends on the plan you’re on: Standard = 3, Plus = 25, Premium = unlimited). The full credit report includes detailed information on directors and shareholders, financials, mortgages and CCJs.
  1. Analysis: This dashboard shows:
    • Aged debtors: How overdue your invoices are in increments of 30 days. You can download a CSV or PDF report showing a breakdown of how overdue your customers’ invoices are, hyperlinked so you can easily navigate the system to follow up with them.
    • Risk segments: How many customers fit into which risk band.
    • Risk concentration: This combines aged debtors and risk segments, so you could look at how many very high risk customers have invoices 90+ days overdue for example.
    • Largest and oldest outstanding invoices
    • Customer credit summary: How many customers fit into each risk band.
    • Top industry segment concentrations: This shows which clients are in which sector.
    • Highest risk active customers
  1. Credit limit breaches: We set a recommended credit limit for each client based on the data we have, and this screen shows if they’ve gone over their credit limit in overdue invoices and helps you reduce bad debt.

This data is vital for making sensible decisions about how you approach credit control for each client. Perhaps you send higher risk clients more email reminders, or give them shorter credit terms. However you choose to approach it, you can do so from a position of knowing you have all the relevant information available to you.

Easily manage your business cash flow on one handy platform

Invoice financing is a useful option to have at your disposal at times when you need a cash injection quickly. But the tools Satago offers in one platform will help you get your finances back on track, encourage your customers to pay more quickly and allow you to manage your business accounts, cash flow and credit control using one tool.

With Satago you can:

  • Check how creditworthy each client is using our risk insights and free credit reports, allowing you to better plan your approach to credit control and the terms you offer.
  • Help your customers to pay faster and reduce your debtor days with automated invoice reminder emails, customised to your clients in language, schedule and frequency, as well as templating ‘thank you’ emails and grouping your clients in a way that makes sense.
  • Cover cash flow gaps with invoice finance whenever you need to throughout the month.

Find out how much Satago invoice financing costs for your business

In this article, we covered the different costs of invoice finance, an approach to help you compare the invoice financing options offered by different providers, and a bit about our pricing structure at Satago.

If you want to try Satago invoice financing for yourself and also make the most of our other tools to help make your credit control processes more efficient, get started today so you can discuss your funding needs with our team.

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