The reliability of your clients:Reliable clients, who have a track record of paying on time, make for lower invoice factoring fees than those with a poor credit history.On the other hand, the building trade can find themselves facing higher rates as they are deemed higher risk. Certain industries, such as recruitment, tend to be considered low risk as payment is normally simple and straightforward. Your business niche and industry:The invoice factoring company will assess your business niche and the track record of your industry when determining your invoice factoring rates.The invoice factoring company may seek to pass the costs of collection onto you, so consider which invoices you factor wisely. Therefore it pays to have fewer larger invoices rather than lots of smaller ones. The size of each invoice: No matter what the size of an invoice, the legwork for collection is exactly the same.This is probably the biggest determiner of your invoice factoring rates. How much you will be factoring: The greater the volume, the lower the rates.The invoice factoring company is going to assess your risk and volume using certain criteria. Understanding this in more detail requires an understanding of exactly what an invoice factoring company will be looking for to calculate factoring fees. Conversely, the higher the risk, and the lower the volume, the higher the invoice factoring costs. Generally speaking, the lower the risk and the greater the volume, the lower the factoring charges. This will look at two key factors: the risk, and the volume of invoices. Therefore, the total cost for factoring your £20k invoice over 30 days is £238.40.Ī factoring company will have their set parameters of how they usually work out a factoring rate. The discount fee is only charged on the funds advanced (the 80% in this example). So, assuming your client pays on 30 days, we need to calculate 3% ÷ 365 (days in the year) = 0.008% (daily interest rate).Ġ.008% x 30 days (time taken for you client to pay) = 0.24%. The service fee will be charged on the gross value of the invoice, so 1% of £20,000 is £200. This means that you will immediately receive £16,000. Their terms state that you will get 80% of the invoice cost immediately (usually within a day or two), and full payment on the invoice when your client pays. The lender has a service fee of 1% and a discount rate of 3%. As a small business, you need some urgent cash to be able to buy the resources you need to take on a new client. Let’s consider a £20,000 invoice which is due for payment in 30 days. Just answer a few quick questions about your business and we’ll send you bespoke quotes from some of the UK’s top invoice factoring companies. There are also other charges that might apply – such as service fees and collection fees – that may also increase the overall cost.Ĭonfused? We don’t blame you and we’re here to help. Obviously, if the invoice factoring company has to wait 40 days for payment instead of 30 days, then that’s going to cost you more. The factoring period on the other hand will depend on how long you give your clients to pay, and whether they actually pay during that time frame. B roadly speaking, the higher the value of invoices you ‘hand over’, the lower your discount rate will be. Ī factoring company's discount or factor rate generally varies between 1. In most cases (some providers offer a flat fee structure), the total cost of factoring will be primarily based on two things – the discount/factor rate and the length of factoring period. The fee you pay will always depend on how well your business is performing, and the reliability of your clients. The first thing you need to know is that there’s no standard cost for invoice factoring.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |