How much invoice finance actually costs
The funder quotes 1.5% a month. What am I really paying to get this invoice paid early?
Almost nobody buys invoice finance because they want it. They buy it because a customer owes them money for sixty days and the bill for wages, materials or stock is due in fourteen. The question worth asking is not “is this product available” but “what does moving this money forward cost me, really”.
That is a harder number than the one on the advert, because a quoted monthly discount rate is not what the money costs you per year, and it is not what it costs you per dollar received. Getting it right comes down to four steps.
1. Work out what actually reaches your account
A funder almost never pays the full invoice face value up front. They advance a percentage, and hold the rest until the debtor pays. Take a $60,000 invoice at an 80% advance: $48,000 is advanced and $12,000 stays with the funder.
Then subtract the one-off fees — registration, assessment, platform charges — because they are usually taken up front rather than added later. That subtraction is the number that surprises people. On a smaller invoice with a fixed setup fee, the cash you receive can be far below the advance figure you were quoted.
2. Convert the rate to an annual figure
A quoted rate is usually a monthly rate, charged on the amount advanced. A monthly rate of 1.5% for example, is 18% a year on the advanced amount if the money were out for a full year. On a sixty-day invoice the actual interest charged is far less than 18%, because the money is only out for sixty days — but so is the benefit.
This is why two quotes at the same headline rate can produce very different real costs. What actually determines the number is the size of the invoice, the days it stays out, and how much of it you actually received.
| Invoice | Advance | Gap | Interest at 1.5% p.m. | Cost per $1,000 received |
|---|---|---|---|---|
| $20,000 | 80% | 60 days | $473 | $30 |
| $60,000 | 80% | 60 days | $1,420 | $30 |
| $200,000 | 80% | 60 days | $4,734 | $30 |
| $60,000 | 80% | 30 days | $710 | $15 |
The pure interest scales with the invoice, but the relative cost changes with the gap: halving the payment gap roughly halves the interest, and the per-dollar figure tracks it.
3. Measure the cost on the cash you received, not the invoice
This is the step most comparisons miss. The percentage that matters is the total cost divided by the cash that reached your bank account, then scaled to a year by the length of the gap.
Take a $60,000 invoice, 80% advanced, $12,000 deducted, $1,775 of interest, over 60 days. The cost on the cash you received is $1,420 / $36,000, which scaled to a year is roughly 24%. Add the one-off fees and the real number goes higher still. That annual figure, not the quoted monthly rate, is the one to weigh against anything else you could do with the money.
The Reserve Bank cash rate target is the yardstick. Business lending prices off it, so an effective annual cost of 24% means paying roughly five times the cash rate to bridge one invoice. That is not automatically wrong — the alternative might be missing a payroll date — but it should be a deliberate decision, not a surprise.
4. Check the cost you probably cannot see
Before you compare two quotes, make sure both include the same things. Funders charge a discount, but they may also charge registration or platform fees, require security over the debtor, take a personal guarantee, or deduct a reserve. A quote that looks cheaper on the discount rate can be worse once those are counted. Ask for the full fee schedule in writing, and for the settlement statement showing the net amount that will land in your account.
Then decide whether it is worth it
Cost only matters against an alternative. If the alternative is an overdraft, a credit card, or simply paying late and taking the strain, the comparison is straightforward — run both numbers and pick the cheaper. If the alternative is waiting, price the timing benefit too.
If the answer keeps coming out expensive, that is genuinely useful information. Short gaps and thin margins are exactly where invoice finance stops making sense, and knowing that before you sign is worth more than a favourable quote.
Run your own invoice. The calculator works out the cash you receive today, the total cost, the cost per week and the effective annual cost for your invoice, and tells you plainly if the numbers do not work. You can then send the result to a licensed business finance broker for a free review.