Invoice Factoring Costs

Invoice factoring costs can be significant and the difference between the cheapest available facility and the most expensive can be surprising. This is why we feel it is imperative that you have a full understand of the costs involved and how those fees are applied.

How do I compare the costs of different factoring companies?

Most factoring companies will quote the same headline rates which are the service fee and the discounting fee. Many businesses make the mistake of simply comparing these two fees to establish the most competitive offer and this can be a very big mistake.

Let’s look at the headline rates from 2 different factoring companies for a business with a gross  turnover of £1m and average borrowings of £100,000:

Table 1

Obviously ‘Factoring Company A ‘ looks like the most cost effective solution. Unfortunately there is not really enough information to establish the true costs of invoice factoring. The information you need may only be available upon request or when you have already made a decision. Let’s look at their charging structure in more detail:

Table 2

This list of additional fees is by no means exhaustive as the list can be a long one. Some lenders have an all inclusive service fee while others will charge in addition to the service fee for various services.  You will see that the discounting fee of ‘Factoring company A’ has a minimum base rate of 3.00% so with the margin the total discounting fee is 5.00%. Let’s have a look at the impact of ‘additional fees’ on the two invoice factoring quotations when we look at total annual costs.

Table 3

As you can see in this well engineered example the headline rates can be misleading yet many businesses base their decision on the headline rates of invoice factoring costs. The numbers above are based on easy numbers but they are based on the pricing structure of two very well known invoice factoring companies so it is a very relevant and valid example.

We have also seen clients where their monthly ‘additional charges’ or ‘disbursements’ are more than the service fee and discounting fee combined. This is however unusual and we only add this to highlight the importance of taking proper advice and considering total costs.

What additional invoice factoring costs should I consider?

At Funding Solutions we take into consideration all the additional costs allowing you to make an informed decision. Costs that we consider include audit fees, survey fees, minimum base rates, minimum service fees, CHAPS fees, legal fees, renewal fees and others. Different lenders often have different names for what is arguably the same fee which further compounds the issue.

How can Funding Solutions help?

Our experience and market knowledge allows us to demonstrate the total invoice factoring costs with any facility so you can make a comparison and make an informed decision.

If want to talk about the costs of invoice factoring for your business contact Funding Solutions today on 0845 251 4040.