- 18 May
Summary Of Our Invoice Finance Pricing Research
This post pulls together all our research, and information, regarding invoice finance pricing and prices.
FundInvoice Average Invoice Finance Cost Savings
We regularly check the average cost savings that we have found for our clients. Our latest benchmark was as follows:
- 29% average receivables financing cost savings found when compared with quotations or existing facilities not sourced by ourselves.
- Average invoice finance cost savings found for the 36 months to November 2021.
Understanding Invoice Finance Pricing Structure
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 lower overall cost - depending upon your usage.
If you are interested in understanding how the finance companies arrive at both the funding levels they offer, and the prices that they quote, read our article explaining how they calculate pricing and funding.
We have also published another piece with more detail about how funders construct their pricing formula.
We have also discussed the question: "Is accounts receivable financing expensive?".
This article explains how factoring cost is structured and gives examples of typical fees. It also explains some of the cost comparison research that is detailed below.
Number Of Quotes
We also have an article that discusses the optimum number of price quotes that you might seek if you are considering using a receivables financing service.
Price Comparisons Between Invoice Finance Companies
We offer a brokerage service that compares prices between different invoice finance companies. This is an example where we were able to find a 41% cost saving for one recourse factoring customer.
Most existing clients have not checked that they are receiving competitive rates. This led to a piece of research that confirmed that 76% of invoice finance users had not checked their pricing against the market during the last year.
Where they do switch between providers, in 42% of cases that is driven by a desire to make expenditure savings.
Confidential Invoice Discounting Price Comparison
Our study looked at what different discounters would quote for the same, average-sized client. In this case, we found an 86% swing between the top and bottom of the confidential invoice discounting quotes that we were given. The study also covered funding levels, by comparing prepayment percentages.
In another article, we broke down the percentage of the overall cost that was administration charge (sometimes wrongly called service charge) and set out the range of differences when you compare offers from different UK providers.
We went on to explain why you should not just compare headline percentages for admin fees (often wrongly called service charges). Our study found that both minimum fees were set to bite increasing costs beyond those percentages in some cases, and the administration fees only accounted for 59% of the charges overall. The other components of the overall outlay need to be taken into consideration.
This article explains the different approaches to minimum fees in greater depth.
Protected Invoice Discounting - PID
Our cost comparison analysis also covered the PID, the protected invoice discounting product. The additional bad debt protection premium ranged from between 20% and 150% of the administration fee (often wrongly called the service charge).
Recourse Factoring Pricing
We looked specifically at recourse factoring prices and found that the most expensive quotes for a given client were 2.7 times higher than the cheapest. In another article, we looked at the argument to renegotiate your factoring fees based on this research, which could yield savings of up to two-thirds of your overall expenditure.
We have an infographic that demonstrates this difference in factoring prices.
Our study also found that the headline service charge percentage, which everyone tends to use to compare quotes, only accounted for 67% of the overall costs - restating the importance of calculating the overall expenditure when making comparisons.
There is an older study where we looked at pricing differentials (on an average deal) between different discounters and factors. However, this has now been updated with more recent studies that have shown significant changes in the relative standing of the various providers.
Historically, in another older study, 68% of users told us that they thought that their receivables financing product was overpriced.
In another piece of research, we looked at how customer choices about the type of provider they want to deal with can drive pricing expectations.
We have put up an example of an actual costing that was sourced for a construction finance customer. This is where funding can be given against either sales invoices or applications for payment, which are commonplace within the construction sector.
This is a pricing example that was obtained for a larger client seeking a selective facility, where you pick and choose the invoices to receive funding against.
We have also asked businesses about their preferences between full turnover and selective approaches. They appear to link a selective approach to achieving a cheaper price, regardless of whether or not this is the case in practice. Often there is the equivalent of a bulk purchasing discount to be exploited if you put all your transactions through a funder.
Another example of an actual quote found for a trade finance client.
Comparisons With Other Products
In another article, we discuss the comparison between a loan product and factoring. The factoring product worked out considerably cheaper than the loan option and there are many other benefits that need to be taken into consideration when making the comparison.
Single fee options have also come up frequently. At face value customers often like the idea of a single predictable charge. However, in practice, these single fees are often loaded up to protect the provider against swings in the volume of trade and transactions that they receive. This can make this a comparatively expensive option when compared with a standard variable costing.