Comparing Factoring Lenders Quotes

When comparing the cash costs of invoice factoring the first thing to do is to identify all the potential costs of the facility offered. A decision based just on the headline costs of the service fee and interest on outstanding balances could prove very expensive. Therefore it is essential that all potential costs are identified.

Factoring Charges that may be Levied

The potential charges a factor may levy are as follows:-

The service fee

This fee is charged by all factoring companies against a percentage of turnover, is usually subject to a set minimum and charged monthly or quarterly. As a general rule this fee is higher for lower turnover businesses.

Interest charged on outstanding balances

Interest is charged on outstanding balances by all lenders i.e. the amount advanced against the value of invoices. Interest is then charged at a margin over base or libor rates and varies between business sectors and turnover factored.

The administration fee

A few factoring lenders will make a small administration charge for each invoice issued and discounted. Where many invoices are involved this can become a big factor in any decision!

Non recourse insurance

If bad debt insurance is taken to protect against non payment, how much will this cost? If no insurance is taken i.e. a recourse factoring facility, what are the charges for late payment of debts?

Renewal fees

This charge is levied by some factoring lenders to actual renew a facility and may need to be paid as little as every 6 months, again what does this cost?

Non utilisation fees

Factoring fees charged for not using the full lending facility. If your company is a seasonal business, then this kind of fee can prove expensive!

Termination fees

Another fee that seems to have become a feature of factoring recently is the termination fee, effectively an exit fee or non renewal fee!

There may be other hidden fees so careful scrutiny of any factoring contract is essential to ensure all are identified.

Having identified all the charges then you are in a position to identify which factoring quote offers the best value for money in purely cash terms. Calculations can be performed on the previous years turnover or on a projection for the coming year.

Of course there are other key points to consider when choosing a factoring lender, such as is any offered credit limit high enough for your business needs? As factoring brokers we are always happy to help our customers with the selection process.

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