Factoring

Dear John, Thank you very much for your notes and videos, I've been able to solve most of the questions I've been practicing. I do have this small problem. In the June 2015 exam paper, question 3, I don't quite understand what this statement means: "A condition of the factoring agreement is that the company would also advance Widnor Co. 80% of the value of invoices raised at an interest rate of 7% per year". The answer solved this as $2,600,695 x 80% x (0.07-0.05) Why was the short term finance cost of 5% deducted from the invoice interest rate of 7%? I was thinking these costs should be accounted for individually. Please explain.