Invoice Discounting Rates
Are They Reducing?
When I look back at the rates charged for invoice discounting over the years I think they probably bottomed out in 2007 just ahead of the banking crisis. The financial sector was booming and competition to win business was strong. The rates jumped back up as invoice finance was one of the few active forms of finance available to businesses throughout the banking crisis. Since then I think we have seen a steady downward force on pricing.
In 2008 not all lenders were truly active in terms of providing invoice finance as they went through liquidity and ownership issues. But since then we have seen these invoice discounting providers return to the market, active lenders with deep pockets looking to increase the amount they advance into the market and new players entering the market looking for market share. As a result I think the rates available for invoice discounting are the lowest I have seen them. Lenders offering business discounting rates at less than 2% over base rate.
Don’t forget the bank base rate is at a record low which also reduces the cost of borrowing.
Service fees are being driven down also as this increased competition drives these down also. While they are typically charged as a percentage of each invoice the lender is basing this on a businesses turnover with a view of earning an annual fee. They start with this fee in mind and we have seen lenders quoting as low as £5,000 per annum for an annual invoice discounting service fee.
Have the overall costs reduced?
In terms of headline rates, I definitely think they have reduced again since the banking crisis and are potentially lower then they were in 2007. However, in the last 20 years there have been a variety of fees introduced into the industry. Arguably, these have been introduced by lenders trying to increase returns and these fees have appoeared market wide. Fees such as set up fees, legal documentation fees, audit fees charged outside of the service fee and annual renewal fees to name a few.
So has the overall cost of invoice discounting reduced? To be fair, I still think that is has but to a lesser degree than the headline rates would have you think.
How do you take advantage?
If you are a business looking for an invoice discounting facility arguably there has never been a better time. The bank base rate is low, discounting margins and service fees have been driven down by competition and that competition means that lenders have to focus on good delivery and customer service. There are of course lenders that still promise the earth and deliver very little but that is perhaps best kept for another article.
At Funding Solutions we can help you structure and source the most competitive facility in the market. That means the best invoice discounting rates available. We analyse the headline rates of service fee and discounting fee but importantly we look at total costs. This means you are not paying any hidden additional charges that make the facility more expensive than you initially thought.
If you are looking for invoice discounting speak to Funding Solutions today on 0845 251 4040.