- 28 Jan
How Do You Calculate Service Charge
If you are looking to find out exactly how do you calculate service charge fees I shall set out the answer below, in some detail.
Service charge is part of the fees that will be levied by your invoice finance company. For more information about charging please see our: Invoice Finance Guide.
Service Charge Differences
Service charge is the fee that covers the provision of the facility and any services that are included, it is normally subject to VAT. In the case of invoice discounting, it is referred to as an Administration fee as there is no actual service being provided (e.g. credit control). Admin fees may be exempt from VAT (check with your funder or your accountant).
The rate at which the fees are set will vary between providers. We recommend that customers check their fee structure against the market on an annual basis.
I should mention that there are some service charge calculation differences in the way that different funders operate. There are a few different approaches to pricing a facility:
- Traditional pricing is a service charge, discount charge and other charges.
- Single fee pricing is one fee charged against turnover with no discount fees, and no other charges in some cases.
- In some cases there may be a fixed service charge, also called a flat fee e.g. £250 (+ VAT if applicable) per month.
- In some cases only discount is charged, without a service charge.
How To Calculate Your Service Charge Fees
Assuming that you are subject to a traditional pricing structure, you will normally be quoted a percentage service fee e.g. 1%. This means that you will be charged 1% of the value of the turnover that your submit to the funder. I some cases all turnover is required to be submitted, in others it can operate on a selective basis by debtor or by individual invoice.
So if you submit an invoice for £10,000, a 1% service charge would result in a fee of £100 (+ VAT if applicable).
Bear in mind that some invoice finance companies will include a minimum fee. This could be a minimum per month, per quarter or even per transaction. So if you had a monthly minimum fee of £120 and you only submitted the £10K invoice mentioned above, you would be charged £120 (+VAT if applicable). The additional charge may not be applied until the end of the charging period i.e. the £100 may be debited on submission with the remaining £20 added at the end of the month.