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The Cost Of Factoring

There are normally two charges to any invoice factoring facility.


  1. A service fee which is charged as a percentage of the business’s sales turnover.
  2. An interest charge based on the funds in advanced.


Bad service is costly


However, not all invoice factoring facilities are the same. You could go to a big bank and get what appears to be a very competitive facility but they may not provide the same level of service as an efficient independent. Staff may be managing a lot more accounts and credit control will be done by computer generated letters and statements rather then by telephone.


If a business is paid on average 45 days. It may be that with bad connections the payment days slips to 55 days but with efficient credit control it improves to 35 days.


The difference in the 20 day collection period will cost the company over £1,600 in additional interest costs. Plus the chances of bad debts are substantially increase with poor credit control.


Additional Costs


Some invoice factoring companies may look very competitive on paper but will charge additional fees in managing the facility. The headline figures may look good but the additional charges actually means that a business is paying more than a facility with a higher headline service fee.


How to look for value for money


You need to ask how the invoice factoring company manage their credit control. Is it managed by a department or and individual credit controller.


It may be worth asking for references from existing clients.


Secondly make sure you get details of additional charges and how and when they are charged. You could even ask that no additional charges are applied at all.


Alliance Commercial Finance will research the market place on your behalf, presenting your business with options, which will take away the hassle of having to spend time conducting you own research. At Alliance Commercial Finance we will listen to your business needs, not what is right for the lender, being truly independent helps us to provide the business owner with sufficient working capital alternatives to achieve growth and cope with the its cash flow needs.

Added: 29 Jun 2017 09:07

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