Invoice Factoring Costs
(Example Only)

Invoice factoring costs can be significant and the difference between the cheapest available facility and the most expensive can be surprising. This is why we feel it is imperative that you have a full understand of the costs involved and how those fees are applied.

How do I compare the costs of different factoring companies?

Most factoring companies will quote the same headline rates which are the service fee and the discounting fee. Many businesses make the mistake of simply comparing these two fees to establish the most competitive offer and this can be a very big mistake.

Let’s look at the headline rates from 2 different factoring companies for a business with a gross  turnover of £1m and average borrowings of £100,000:

Factoring Company A Factoring Company B
Service Fee %

0.8%

1%

Discounting Fee %

2% over base

2.5% over base

Obviously ‘Factoring Company A ‘ looks like the most cost effective solution. Unfortunately there is not really enough information to establish the true costs of invoice factoring. The information you need may only be available upon request or when you have already made a decision. Let’s look at their charging structure in more detail:

Base rate 3 month LIBOR Bank of England Base Rate
Minimum base rate 3.00% N.A.
Audit fees £500 (included in service fee)
Audit frequency 6 months 6 months
Set up fee £1,000 Nil
Legal documentation fee £500 Nil
Pre lend survey £750 Free of charge

This list of additional fees is by no means exhaustive as the list can be a long one. Some lenders have an all inclusive service fee while others will charge in addition to the service fee for various services.  You will see that the discounting fee of ‘Factoring company A’ has a minimum base rate of 3.00% so with the margin the total discounting fee is 5.00%. Let’s have a look at the impact of ‘additional fees’ on the two invoice factoring quotations when we look at total annual costs.

Service Fee £8,000 £10,000
Discounting fee per annum £5,000 £3,000
Audit Fees £1,000 Nil
Set Up Fee £1,000 Nil
Legal documentation fee £500 Nil
Pre lend survey £750 Nil
Total annual costs £16,250 £13,000

As you can see in this well engineered example the headline rates can be misleading yet many businesses base their decision on the headline rates of invoice factoring costs. The numbers above are based on easy numbers but they are based on the pricing structure of two very well known invoice factoring companies so it is a very relevant and valid example.

We have also seen clients where their monthly ‘additional charges’ or ‘disbursements’ are more than the service fee and discounting fee combined. This is however unusual and we only add this to highlight the importance of taking proper advice and considering total costs.

What additional invoice factoring costs should I consider?

At TML we take into consideration all the additional costs allowing you to make an informed decision. Costs that we consider include audit fees, survey fees, minimum base rates, minimum service fees, CHAPS fees, legal fees, renewal fees and others. Different lenders often have different names for what is arguably the same fee which further compounds the issue.

How can TML help?

Our experience and market knowledge allows us to demonstrate the total invoice factoring costs with any facility so you can make a comparison and make an informed decision.

If want to talk about the costs of invoice factoring for your business contact TML today on 01628 421620.