March 25th, 2014.
What is the True Cost of Invoice Factoring?
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We’ve talked about invoice factoring before on our blog, and for good reason. It is a very popular service that can help you make the most out of your situation and maintain a steady cash flow. But what are the typical invoice factoring rates you can expect to see? Here’s everything you need to know about the cost of invoice factoring:
The biggest benefit of factoring is that you receive between 75-90% of the total amount of your invoice straight away. How much you will actually receive depends on the company you are using but from around 75% upwards is a common value. Typically lenders will not give you the full total of the invoice due to the risks that are still involved in chasing up the payment.
How much does invoicing cost?
Again, this differs from lender to lender and the best way to get the lowest invoice factoring rates is to use a commercial finance broker. Because factoring companies are essentially lending you money, you can expect to see a competitive interest rate being placed on the loan. In addition to this, there is normally a management fee of around 0.2% to 0.5% which will subtract from your overall profit.
However, unlike invoice discounting, factors will chase the debtors on your behalf, ensuring that you get paid for the service/ goods you provide. This is a service that would typically be carried out by your financial department, so if you don’t have one it could effectively save you money in hiring staff.
At Pure Commercial Finance we do our best to make sure that our clients know about every single cost that could arise with each lender. Some of these charges may include:
• Re-factoring charges on debts that have run for a certain amount of time
• Charge for electronic transfers or bounced cheques
• Some lenders charge a one off arrangement or commitment fee for using their services.
• Debt protection insurance against debtors not paying their invoices
Wherever possible these charges will be revealed and listed in any contracts between the two parties. Most of these charges will be one off fees, rather than regularly occurring payments to the lender.
Calculating the Costs
Working out just how much using invoice factoring will cost you depends strongly on your individual needs and the charges of the invoice company. The best way of figuring this out is to calculate the costs of your invoices and subtract the factoring fees and interest rates to work out how much profit you receive every month.
It is important to remember that invoicing guarantees you a regular cash flow that you can rely on and can save you both time and money on chasing up your invoices. To get the best deals on your invoice factoring talk to our friendly team at Pure Commercial Finance today.