- 31 Jul
Bundled Fee For Textiles Business
Curious situation with a client at the moment.
The client is a textiles importer and we have found them an invoice finance facility with one of the leading invoice financing companies, to deliver much needed cash flow. They are also very keen on achieving the best rates available.
They wanted a single fee structure, often referred to as a "bundled fee" within the industry. Normally the charges are divided into a service charge (percentage of turnover) and a discount charge (similar to interest on the amount that the client borrows). We have written extensively about how factoring cost works, with examples of factoring charges.
In the case of this particular client, they are adamant that they want to go down the bundled fee route, and you can understand this thinking as they like the idea that they have one single charge at a fixed level each month. It makes the fees very predictable, and easy to budget.
Premium Over Component Pricing
However, the other dimension of this pricing structure is that the invoice financing company will add a premium to a bundled fee structure, over and above the fees that they expect from the more traditional component pricing structure of service charge and separate discount. This is because they are protecting themselves against the possibility that a client's achieved trading figures e.g. turnover volumes and hence borrowing levels, deviate significantly from the projections on which they based their costing. If the achieved turnover etc. ended up being a significant amount adrift of the projections, a costing based on the projections may turn out to be significantly undercosted.
Cheapest Invoice Finance Rates
So a component pricing approach is going to be slightly more expensive than a bundled fee. Whilst the client is very much focused on getting the best invoice finance pricing possible, they are still of a mind to take a single fee structure despite it being a little more expensive than the alternative fee structure.
If a client really only wants to get the cheapest invoice finance rates, they a separate service charge and discount charge is always the way to go, avoiding any premium added to a bundled fee. However, we understand that not everyone has lowest price as their primary driver, and often predictability of charges is a more important criterion for some clients. Therefore, we cater for all needs, and get our clients what they want.