What Is a Minimum Service Charge in Invoice Finance?
A minimum service charge is the least you pay each month, even if you put few or no invoices through. Lenders set their own amount and do not publish one figure, so ask for it in writing before you sign. It catches people out in quiet months, so check it carefully if your sales are seasonal.
How the minimum service charge works
The service charge is normally a percentage of the invoices you put through the facility. The minimum service charge is the floor: if your percentage charge for the month comes to less than the agreed minimum, you pay the minimum instead. It guarantees the provider a baseline of revenue from the relationship and is most common on whole-turnover factoring and discounting contracts rather than selective or spot facilities.
Worked example (example figures, not a quote): a 1% service charge with a £400 monthly minimum. Put through £60,000 of invoices and the percentage charge is £600, so you pay £600 and the minimum is irrelevant. Put through £20,000 in a quiet month and the percentage charge is £200, but you still pay the £400 minimum, an effective rate of 2%.
How to avoid being caught out
Ask for the minimum to be quoted alongside the headline service charge, and model it against your quietest realistic month, not your average. Seasonal businesses should push for a lower minimum or a selective facility with no minimum. Compare total cost of funds, not just the headline rate, using our cost calculator, and see the full cost breakdown guide for the other fees to check.
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Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam was managing director of Penny, a UK invoice finance business, from July 2020 to November 2023. His career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library. Career record.
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