- 29 Jan
Service Charge & Discount Charge Differences Between Invoice Discounting Companies
I recently reported the 86% differential between the cheapest and most expensive quotes that we received for a particular client situation. This difference was based on a comparison of the anticipated charges that might be levied by different invoice discounting companies.
I thought it might be interesting to look in a bit more depth at the components of those costings, and how they vary between the different invoice discounting companies that quoted.
The two basic components of the overall cost in our example were administration/service charge (a percentage of turnover) and discount charge (similar to interest).
Service Charge Differences
The service charge (as it is commonly called - although Administration Charge is a far better term for invoice discounting) is the percentage of the value of turnover that is charged for providing the facility. In the case of invoice discounting there is of course no credit control service, but the charge is for the administration of operating the facility.
In this particular case, we saw a variation between the cheapest and most expensive quotes of 150%.
That means that if you choose a provider at the bottom of the pricing table, you would pay 1.5 times more than the cheapest provider would charge, for exactly the same facility - a huge difference in fees.
Discount Charge Differences
The discount charge works in a similar way to interest on a loan. It is a percentage of the funds in use (charged in addition to either bank base rate or LIBOR).
So if a company borrows say £100,000 at a discount margin or say 2.5% over base rate of say 0.5%, they will pay 3% (2.5 + 0.5) each year for those funds. Which would be £3,000 for the year in my 100K funds in use example. LIBOR can be a slightly different value to base rate, and both can move.
We found that approximately 15% of the providers charged their discount margin over LIBOR, whereas the remainder used bank base rate.
Discount Margin Differences
The discount margins quoted (excluding base or LIBOR) varied by 74% between the cheapest and most expensive quotes.
Again a substantial difference, albeit less that the range for service charge. This means that you could pay 74% more discount margin to the most expensive provider, than to the cheapest.
The Cheapest Invoice Discounting Company
Whilst there was a cheapest invoice discounting company that led the overall pricing table, it is worth noting that no single provider came out cheapest in respect of all aspects i.e. service charge, discount and overall projected cost. This means that your choice of provider could be influenced by the exact nature of your business and the amount of funding you expect to draw down. For example, if you don't expect to need the full amount of funding, the overall costing might be less sensitive to discount margin, than to service charge. This could affect who would be the cheapest provider in your case.
- 18 May
Summary Of Our Invoice Finance Pricing Research
This post pulls together all our research, and information, regarding invoice finance pricing and prices.Our free receivables financing guide describes both how the products work, and also how the pricing is structured. It also sets out minimum costs for full turnover products, which start from c. £3,000 + VAT per annum - selective products (typically costing c. 2% per month) can have a much...
- 03 Apr
The Cheapest Invoice Finance Company
If you are looking for the cheapest invoice finance company, you may be surprised to know that there is no single company that answers this description.The cost of an invoice finance facility depends upon a number of factors, and the cheapest provider for any particular circumstances varies according to those circumstances.We have undertaken extensive research into the pricing of invoice finance...
- 29 Mar
Is Invoice Finance Expensive?
Is invoice finance expensive?The answer to the question is that it doesn’t have to be. However, if you choose the wrong provider, you could end up paying more than you need to.Our research has shown that overall pricing for, as an example, a factoring facility can vary by 165% from the cheapest quote to the most expensive. We also saw an 86% differential between the top and bottom of the...
- 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.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...
- 14 Mar
Why You Should Not Just Compare Invoice Discounting Pricing Percentages
So often we speak to customers that are comparing various offers for invoice discounting, and their key measure for comparison is the headline administration (often wrongly referred to as service charge) charge percentage.With an offer for invoice finance, you normally are quoted a service fee (or administration fee for invoice discounting), a discount charge (similar to interest) and then there...
- 02 Feb
41% Cost Saving On Invoice Finance
You may be forgiven for thinking that any existing users of invoice finance will have moved providers, and will be benefiting from the lowest prices that are on the market, but that is clearly not the case. This was highlighted in the case of a prospect that we assisted over the last few weeks.They spoke to us regarding an existing invoice financing facility, that was being provided by a bank...
- 24 Jan
Invoice Discounting Minimum Monthly Fees Charges Compared
I was asked to clarify if minimum annual fees are still charged monthly, and how many providers offer a flat fee structure (as opposed to charging a percentage of turnover). The answer is that most providers have moved away from quoting a minimum annual fee, towards quoting minimum monthly fees. The effect is the same, but I guess the number presented to a prospective client seems much smaller...
- 23 Jan
41% Cost Saving On Recourse Factoring
One of the things that we pride ourselves on is keeping up to date with pricing around the factoring market, so that we can find the best rates for our clients.In a recent example we were able to find a c. 41% projected cost saving for a prospect, on the fees that they were already paying - this equates to a substantial annual cost saving for the company.This particular example involved a company...