Is Factoring Expensive?

Is factoring expensive

Is factoring expensive? Yes it can be but does it represent good value to your business?

You may be asking how much factoring will cost your business?

Factoring certainly has a cost attached to it and that cost is not insignificant. Many businesses ask if factoring is expensive relative to an overdraft and the simple answer, despite many articles to the contrary, is yes it is more expensive than an overdraft facility. However, this is only relevant if an overdraft has been offered to your business.

If like most businesses in the UK, an overdraft is not available to your business, you really need to concentrate on value when establishing whether or not factoring is expensive. At Funding Solutions we believe that means focussing on 2 key things.

  1. Is the factoring facility well priced relative to the facilities available within the factoring market? That means that when you have found the structure and the service that you need is the facility well priced relative to other providers offering the same structure and service.
  2. By using the facility does it allow you to achieve your objective such as increasing sales and improving profitablity?

Is the factoring facility well priced?

Pricing is a key variable when comparing factoring facilities but structure and service levels in our opinion are the most important. If you are paying for a service that does not deliver the cash or the service that you require, then it is automatically too expensive as it is not fit for purpose. So let’s assume you have sourced 2 facilities with the right structure and services that you require. How do you go about comparing the facilities? You need to look beyond headline rates. Most service providers will quote 2 fees which are a) the service fee and b) the discounting fee. These are important but equally important are the other fees such pre-lend survey fee, audit fees, arrangement fees, legal documentation fees, renewal fees, CHAPS transfer fee, credit limit fees, etc.. The list can seem endless from some providers and we have seen some facilities where the monthly disbursements fees are higher than the service fee and discounting fee combined. This can make comparison difficult but at Funding Solutions we are here to help.

At Funding Solutions we know how each lenders structure their fees. We know how to compare facilities over a 12 month period focussing on total costs and not just headline rates.

Will it allow me to meet my objectives?

Many businesses use factoring or invoice discounting with a view to increasing sales and profits. It is important to test that assumption and we recommend using financial forecasts for profit and loss and also cash flow. When deciding whether or not to use the facility it is important to understand what can be achieved both with and without the facility. If by using a factoring facility your cash flow allows for additional turnover that provides additional profits after the cost of the fcatoring then a factoring facility may well represent good value. You obviously have to build in the risk that increased sales will in fact follow.

Why use Funding Solutions?

At Funding Solutions we spend each and every day dealing with factoring providers and structuring facilities for businesses like yours. We understand the potential pitfalls and the costs involved. Through working with us you can:

  • access the whole market of providers
  • ensure that any facility is structured to meet your needs
  • obtain the best possible pricing within the market meaning you get the best value
  • understand the total costs involved allowing you to make an informed decision

We genuinely want to help. There is no ‘hard sell’ just honest advice allowing you to make an informed decision. Afterall only you can decide what is best for your business.

Contact us today on 0845 251 4 040