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
Click here to find out more information about Invoice Factoring
Find Out The Costs of Factoring For Your Business Today?
Would you benefit from an expert guiding you through the application process?
Ring 0161 5469128 To Speak With A Invoice Factoring Expert or Complete The Form Below