- 18 Mar
Service Charge 67% Of Overall Recourse Factoring Fees
After recently reviewing the result of our confidential invoice discounting (CID) pricing research, I looked back at our recourse factoring pricing study, which completed about a year previously.
Recourse Factoring Pricing
The results were similar in that they showed a wide range of pricing differentials between the top and bottom ends of the market, in fact the range was a staggering 165% between the cheapest and most expensive quote received for an average sized client.
Service Charge Accounts For 67% Of Overall Fees
Looking below the headline differences I calculated the proportion of the overall charges, that the service charge element represented. These calculations excluded any additional fees such as for a CHAPs transfer etc.
On average the service charge, within these recourse factoring quotes, accounted for 67% of the overall charges. This is somewhat more than the equivalent percentage when examining confidential invoice discounting quotes (59% of total cost was admin fee). This is perhaps what one might expect to see. There is a larger service element to providing factoring, as a credit control service is included. Therefore, logic would suggest that the "service fee" element might be expected to make up more of the overall costs.
With CID, the admin fee (equivalent of service charge) is attributed to the administration and risk management of the facility. It could be argued that 59% of overall fees being attributed to this is quite a high proportion. The range of admin fee elements within our CID study was between 49% and 66%. There would be some logic in considering using the providers that quoted at the bottom end of this pricing spectrum. Within their charges, a proportionately lower percentage of what you pay is attributed to the administration and risk management functions.
Range Of Prices - Recourse Factoring
We also looked at the proportion of the overall fees made up of service charge, across the range of prices that we received within the recourse factoring comparison. We found that the range was from 57% up to 77% of overall fees. This suggests that when comparing factoring prices, the key element is the service fee, but the discount margin should not be ignored, as it could still account for a third of the overall price that you pay (on average), and up to 43% of your overall costs, should you select the provider that attributed the lowest proportion of their fees to discount charges.