Invoice Discounting in Kenya: 7 Practical Steps, Bank Terms and Real Costs

Updated 7 November 2026

Invoice discounting lets a business borrow against invoices it has already sent to customers, instead of waiting 30, 60 or 90 days to be paid. In Kenya, banks such as Co-operative Bank and KCB advance up to 80% of an approved invoice. When the customer pays, the bank recovers the advance plus interest and fees, and the balance goes to you.

Checked on 7 November 2026 against Co-operative Bank’s MSME trade finance page and key facts statement and KCB Bank’s SME borrowing page. Bank terms change; confirm the current offer letter before you sign.

Contents: How it works · Bank terms · Cost example · Seven steps · LPO finance vs invoice discounting · Risks · FAQ

How invoice discounting works

You deliver goods or finish a job, then issue an invoice to a creditworthy buyer. The bank checks the invoice and the buyer, then pays part of the invoice value into your account. Your customer pays the invoice on its normal terms, usually into an account the bank controls or monitors. The bank deducts what you owe and releases the rest.

Unlike factoring, where a finance house may take over collection, invoice discounting usually leaves the customer relationship with you. The facility is short-term: it is designed to cover the gap between delivery and payment, not to fund long-term assets.

Invoice discounting terms at two Kenyan banks

Co-op Bank’s key facts statement prices “LPO Finance/Invoice Discounting” together, so the 2.5% commission and base-rate-plus-4% interest apply to both. The bank’s base rate is not on that page; ask for it in writing, because it drives the interest cost.

Worked invoice discounting cost example

This example uses Co-op Bank’s published structure. The base rate here is an assumption for illustration only, not the bank’s current rate.

• Invoice: KSh 1,000,000, payable in 60 days.
• Advance at 80%: KSh 800,000.
• Commission at 2.5% flat on the advance: KSh 20,000 (check whether your offer charges it on the advance or the invoice).
• Interest at an assumed 14% a year (base rate plus 4%) for 60 days: 800,000 × 14% × 60 ÷ 365 = about KSh 18,411.
• Total cost: about KSh 38,411, or roughly 3.8% of the invoice for two months.

When the customer pays KSh 1,000,000, the bank takes the KSh 800,000 advance plus its charges, and you receive the remaining balance. If the customer pays late, an extension fee and more interest apply, so the cost can rise quickly.

Seven steps to get invoice discounting

1. List your buyers. Banks lend against the buyer’s ability to pay, so start with large, established customers with a record of paying on time.
2. Clean up your invoices. Each should show the buyer, goods or services, amounts, due date and your details, backed by a contract or purchase order and delivery notes. Our eTIMS invoice guide covers how to issue tax invoices correctly.
3. Prepare company documents. Expect to provide registration documents, KRA PIN, a business permit, bank statements and recent accounts.
4. Apply for a limit. The bank sets a revolving limit for the year and may approve specific buyers under it.
5. Agree on payment routing. Usually the buyer is told to pay into your account with the bank, or the bank takes an assignment of the invoice.
6. Submit each invoice. After delivery, send the invoice and proof of delivery for the advance.
7. Reconcile every payment. Match each customer payment to the advance and charges, and query any deduction you do not understand.

LPO financing vs invoice discounting

The two are often confused. LPO financing pays for goods before you deliver, based on a local purchase order. Invoice discounting pays after you deliver, based on the invoice. KCB says it finances up to 60% of the cost of goods under an LPO, while it offers up to 80% of an invoice. The lower LPO percentage reflects the higher risk that delivery may not happen. Many suppliers use LPO finance to buy stock and invoice discounting to wait for payment. For other SME options, see our review of Faulu SME loans and trade finance.

Risks to check before you sign

• Recourse. If the buyer does not pay, the bank will usually come back to you for the advance. Read the recourse clause.
• Customer notice. Some buyers dislike being asked to change payment details. Agree how this will be handled.
• Disputed invoices. A complaint about quality or quantity can delay payment and increase your interest cost.
• Total cost. Compare the full cost of the facility with an overdraft or with offering your buyer an early-payment discount.

Frequently asked questions

How much can I get through invoice discounting in Kenya?

Co-operative Bank and KCB both advertise up to 80% of the invoice value. Co-op Bank’s minimum is KSh 50,000.

How long does an invoice discounting advance last?

At Co-op Bank, up to two months, depending on the invoice period. The facility itself revolves for 12 months before review.

What does invoice discounting cost?

Co-op Bank publishes a 2.5% flat commission plus interest at its base rate plus 4% a year. Ask any bank for the full cost in writing.

Is invoice discounting the same as factoring?

Not quite. With invoice discounting you usually keep collecting from your customer. With factoring, the finance provider often manages collection.