- 18 May
Summary Of Our Invoice Finance Pricing Research
This post pulls together all our research, and information, regarding invoice finance pricing and prices.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.
This article explains how invoice financing costs are structured and has links to examples of different size company's factoring costs and invoice discounting costs.
If you are interested in understanding how the finance companies arrive at both their 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?".
Factoring Costs
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. When we looked back at our performance we had been able to save 4 out of 5 clients an average of 35% on the total fees quoted elsewhere. 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.
We also took a deeper look at the components of that pricing and this is another summary article about the differences.
Minimum Fees
We went on to explain why you should not just compare headline percentages for admin fees (often wrongly called service charge). 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, that 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.
Older Studies
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.
Actual Prices
Construction Sector
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 common place within the construction sector.
Selective
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.
Trade Finance
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 options when compared with a standard variable costing.
Related articles
- 04 Jun
4 Simple Ways To Reduce Your Factoring Costs
If you are an existing factoring user, and you are looking for ways to reduce the cost of factoring, we have set out below four simple actions that you could consider.The cost of factoring is constantly changing, rates have moved over the last 12 months. In addition to this, the rates offered by different factoring companies will vary dramatically. In a recent study, we found that there was...
- 23 May
How We Found A Cheap Factoring Quote Less Than 2K A Year
We have just found a really cheap factoring quote for a prospect, that is worthy of sharing, at less than £2K per annum - all inclusive.The small micro business has a low level of annual turnover, hence they are very price conscious. They want to factor all their invoices, so it is a whole turnover facility.Factoring will provide them with both funding against their sales ledger, and a credit...
- 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...
- 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...
- 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...
