Invoice Factoring Discounting Fees
What does factoring or invoice discounting cost? How do lenders calculate their fees?
Invoice finance facilities are costed by lenders based on workload and perceived risk. There are 2 main fees and we will look at these separately.
Service Fee
The invoice finance service fee is what a lender charges you to administer your facility. This fee is based on the workload of providing you the client with that invoice finance facility.
If you are invoice discounting you are paying for your account management system and for the time your client manager spends administering your facility. The main variable for calculating the fee will be turnover and typically the higher your turnover the lower the percentage fee you will pay.
If you are factoring then the workload includes the ongoing account management and also the amount of work that goes into credit control. When calculating a service fee for a factoring facility there are 3 main variables – turnover, the number of active customers that you have and the number of invoices that you issue. Typically, the higher the turnover the lower the percentage service fee and the higher the number of customers and invoices the higher the fee.
These variables can change over time so if your turnover increases or your customer numbers or number of invoices fall then it is advisable to look for a rate reduction.
Discounting Fee
The discounting fee is equitable to the interest you would pay on an overdraft facility. It is made up of a base rate and a discounting margin.
The base rate can be the bank base rate but can also be subject to a minimum base rate that is usually dictated by the lenders own cost of funds.
The discounting margin is usually dictated by the perceived risk in lending you the money. The lender is always taking some risk and for that reason they deserve a return on the money they lend to you. Different lenders can perceive risk in different ways and as such some lenders will be able to provide cheaper facilities.
Invoice Finance Quote
Please fill in our free online quotation form to receive a bespoke online quotation for your business.
If you would like to know more about invoice factoring fees and invoice discounting fees call us on 0845 863 0738 or email us.
