Costs Of Factoring

Lets explore whats the costs of factoring are and how much is may cost for a business to use factoring.

What Are The Costs Of Factoring?

Different banks and factoring lenders will charge in different ways for a facility. There is no set way of charging but there are common charges associated with taking out a factoring facility.

Here are the most common costs for an invoice factoring facility:

  • Setup/Arrangement Fee – Some Factoring lenders charge a set up fee, although not all. Whether or not a set up fee is charge will vary between lenders and may depend on the complexity of the case. Typical set up fees might be between 1-2% of the facility limit.
  • Service Charge – This usually accounts for the majority of the costs of a Factoring facility. The service fee is usually charged as a percentage of your invoices/turnover. This would commonly range from 0.5 – 3% and is often subject to a minimum monthly charge.
  • Interest/Discount Fee – As well as the service charge, any money advanced under the facility will usually incur interest. This would typically be 3 – 5% per annum, calculated daily.

Other Potential Fees

  • Bad Debt Protection (BDP) – This is usually optional and is to cover invoices against non payment. This may also be referred to as recourse or none recourse factoring. A Credit Insurance policy would usually remove the need for BDP.
  • Refactoring Fee – This is only charged when a invoice remains unpaid after an agreed approval period, usually 90 days.
  • Credit Note Fee – A factoring facility may or may not include a fee for processing a credit note.
  • Annual Review/Renewal – Some lenders may charge a annual renewal or facility review fee.
  • Survey Fees – Its also worth double checking if a lender requires mandatory surveys and if so what cost (if any) they may charge.

As mentioned earlier, costs/fees can vary significantly between banks and specialist invoice factoring lenders.

It is worth seeking the help of a professional invoice factoring broker to help negotiate on your behalf.

Get in touch with Bolton Business Finance today to get a Free Invoice Factoring Quote.

Things That May Influence The Cost Of Factoring

  • How Much You’re Borrowing
  • The Quantity of Invoices
  • Your Particular Industry or Sector
  • Your Client’s Credit Score And Worthiness
  • Your Own Credit Risk & Score

How Much Does Factoring Cost?

Lets take an example and look at how much an Invoice Factoring facility might cost for a £1 million turnover business.

This is a real life example from a facility we have set up in the past.

  • Projected Turnover: £1,000,000
  • Funding Limit; £125,000
  • Invoice Funding Percentage: 90%

One off fees

Set Up fee: £500

On going fees

  • Service Fee: 0.75%
  • Interest Rate: 3% + Base

If all turnover goes through the facility then:

Service Fee: £1,000,000 x 0.75% = £7,500 Per Year

Interest Rate: £100,000 balance (3.1%) Approximately £8.50 Per Day

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