When speaking to clients and reviewing their factoring and invoice discounting facilities I am often amazed at how much their dispursements are. What amazes me more is often they don’t actually know what what those dispursements are.
It is not rare to see clients whose dispursement charges are in excess of both the service fee and the discounting fee combined! This seems like madness to me.
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When investigating dispursement charges they often include re-factoring charges (although many companies show this seperately), same day transfers of money, overpayment charges and fees for credit checking new customers.
Many companies make the mistake of focussing purely on the headline rates of the service fee and the discounting fee. These can often be misleading.
The discounting fee is always quoted as a percentage over a base rate. Many lenders have a minimum base rate quoted in the agreement which can make this rate higher than it first appears. For example 2% over bank base rate when the bank base rate is 0.5% may appear as though it is 2.5%. Possibly, but if your invoice finance provider has a minimum base rate of 5% then the rate is actually 7%. Not all lenders have minimum base rates and in some instances the minimum base rate relates to the lenders own cost of funds but it is imperative you are aware of it, especially when trying to make comparisons.
In terms of the service fee you also have to be aware of the minimum service fee. If this is kicking in each and every month the % service fee is a red herring. Importantly though you need to understand what is included in the service fee. Some lenders quote a fee and everything is included while others quote a service fee and then have a large list of dispursements. The ‘all inclusive’ fee may appear slightly more expensive but in reallity it could be by far the better option.
When looking at invoice finance facilities it is not unusual for Smart Factoring Quotes to reduce overall costs by more than 50%.
If you have a facility why not let us review your facility and see what we can achieve for your business. There is nothing to lose.