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Factoring

I have recently dealt with a number of small businesses who were being penalised by way of minimum service fees when turnover had not reached expected levels or turnover had dropped.

Let’s face it, factoring can be an expensive exercise anyway so why pay more than you have to. If turnover has in fact dropped or has not reach expected levels the last thing you need is to be penalised for it.

We have been introducing a facility where there is no minimum fees and there is just a 3 month contract period.

This is ideal for small businesses who want to try out invoice finance or where they are being hit with minimum service fees.

If you are a small business looking for a factoring facility then contact Smart Factoring Quotes today to see which facility and lender is best suited to your business.

Invoice Finance companies will typically not provide finance to companies in the construction industry that raise applications for payment. However, at Funding Solutions we have been finding finance for such companies from the very outset. Clients of ours include scaffolding firms, tiling contractors, roofing contractors and various other construction related businesses. If you are looking for finance against applications for payment then give us a call.

Part of this is because they cannot actually take assignment of an application as it is not a legal document whereas an invoice is.

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Factoring fees are often hard to calculate because there are so many variables and potentially hidden charges. Let’s look at each element of the factoring fees and understand how to calculate them:

Factoring Service Fee – this is typically quoted as a percentage such as 1%. This fee is applied to your gross turnover. So if your annual turnover including VAT is £1m then your annual service fee is £10,000.

Minimum Service Fee – it is important to check your factoring contract or terms because there will usually be a minimum service fee. Using the above example if the minimum service fee was £12,000 then this is the service fee that would be paid. The calculation above would only become relevant if the gross turnover was above £1.2m.

Retro Fee – it is important to remember that at the commencement of the facility the service fee will be applied to the gross value of your debtor book. If your debtor books is standing at a gross value of £250,000 and the service fee is 1% then the retro fee will be £2,500.

Discounting fee – this is the charges applied to what you borrow. In simple terms it is the base rate plus the margin multiplied by the average borrowing. It is important to check for a minimum base rate. Do not assume you are borrowing over the Bank of England base rate. If the minimum base rate is 3%, the margin is 2.75% and the average borrowing is £100,000 then the rough discounting fees payable are £5,750. Please, please, please remember to check for the minimum base rate.

Arrangement fee – this is a fee that is charged to set up the facility. It is important to check this as it can be significant. This is certainly an area to negotiate as they are a fairly new feature in factoring agreements as the retro fee was thought to compensate for upfront fees.

Survey Fee – some lenders will charge to do a pre lend survey before making a formal offer while others will do this free of charge.

Audit Fees – some factoring lenders include the cost of audits within the service fee while other charge in addition to the service fee. It is important to check this.

Disbursements – some lenders have a list of disbursements as long as your arm. Please ask for a list of disbursements from any prospective lender and try to anticipate which services you may need over the course of a year.

Total Cost in Year 1

Service Fee or Minimum Service Fee +

Retro Fee +

Discounting Fee (remember minimum base rate) +

Arrangement Fee +

Survey Fee +

Audit Fees +

Anticipated Dispursement Fees

Please remember that not all lenders charge all of the above fees. Please also remember that just because they are not mentioned in the initial indicative terms you receieve does not mean they do not apply. You must ask the question and check all the small print.

Is it worth it?

Well that depends on what you can achieve with the additional working capital. I would suggest doing a P&L forecast and a cashflow forecast both with and without the facility. That will show whether or not the facility is worth taking up or not.

If you have any questions please contact us. Our approach is not a sales approach. We simply explain the pros and cons of each option available to you and allow you to make an informed decision for yourself and your business.

Factoring Brokers vary from one man bands to sophisticated sales organisations and everything in between.

If you have received a telesales call or direct mail the likelihood is that you are hearing from one of the larger factoring brokers. As with any large organisation the quality of the advice you receive will depend on the individual you deal with and in some instances can be poor.

If you are dealing with a one man band you are obviously totally reliant on that individual and there own personal expertise.

Some brokers simply pepper the market with your requirement and hope that a lender manages to convert your deal in return for commission. This is lazy and could easily be achieved by any business owner and a yellow pages.

There are a lot of excellent brokers in the market and I am not about to criticise any of them.

At Smart Factoring Quotes we are very proud of our approach and track record. We do not sell anything. Our aim is to understand a clients business and it’s requirements. From there we explain how invoice can help them and we explain the costs along with any potential benefits and downfalls of the facilities available. Our knowledge of the market and each lenders capabilities and criteria allow us to get straight to the most suitable lenders. In short we set out the invoice finance options in detail and allow the business owner to make an informed decision.

We want our clients to make any decision with peace of mind that they understand what they are entering into.

Invoice Factoring Services are provided by numerous invoice factoring companies within the UK.  Depending on the unique requirements of your business there will be a factoring company that is best suited to meet your needs. If you would like guidance as to which factoring company can provide the factoring service the best meets your needs please contact Smart Factoring Quotes today.

Invoice factoring services can differ dramatically for each invoice factoring company. They differ in terms of the following:

  • The individual limits they will set for each of your customers. This can have a huge impact on the amount of funding generated.
  • The funding period they are happy to fund up to. Some will fund up to 120 days while some others will only finance for much shorter periods. This may or may not be an issue but it is important to realise what is on offer and how it impacts on the factoring service you receive.
  • The style of collections. Factoring companies provide a collections/credit control service. Some genuinely manage the credit control with phone calls and communicate any issues with you so they can easily be resolved. Others will simply send out automated letters and month end statements in the hope that customers will react. Some companies will even provide a confidential credit control service where they call as if they are calling from your own business rather than a factoring company.
  • Concentration limit – how much debt will the factoring company provide against any one debtor. This may impact on your funding.
  • Then there are the obvious headline rates including prepayment, service fee and discounting fee. These are obviously important but please, please, please look beyond these and understand the total fees and what funding is actually generated.

If you are unsure please take impartial advice. Call Smart Factoring Quotes – we are happy to help.

Factoring Special Offers

There are always special offers available in the market. As I write several lenders are claiming that they won’t be beaten on price and one is offering a facility ‘interest free’ for the first 3 months. The lenders with special offers change almost weekly and the quality of the offers can vary.

When comparing special offers for factoring it is important to approach with caution. I am always wary of an offer for 3 months interest free when the offer then ties you in as a client for 18 months. The initial benefit will almost definitely be recovered by the lenders when the initial offer period ends.

Importantly, you should always ensure that any factoring facility you are considering meets the needs of your business. You need to understand what debtor limits are in place, whether the concentration limit is enough for your business and which invoices the prepayment is applied to. If the factoring facility works for your business it is then important to compare total costs over say 12 months. This should include any factoring special offer that you are looking at.

At Smart Factoring Quotes we are in constant communication with the lenders in the market place. As such we know what offers are available. Importantly we are experts and can help you through the minefield that is a quote for factoring to ensure a) the facility works for you and b) the total costs of the facility are understood.

Selective factoring is where the client chooses which customers they wish to factor. This compares to traditional whole turnover agreements where clients are expected to notify their whole turnover from every customer.

Selective factoring is available within the market however very few lenders offer this.

The benefits of selective factoring are as follows:

  • selective factoring means that you can choose specific customers that are perhaps slow payers
  • selective factoring means that specific sensitive customers can be left out of the factoring agreement
  • selective factoring can reduce administration and finance costs as not all turnover has to be included in the agreement.

Factoring company reviews – speak to Smart Factoring Quotes to learn more about the different companies.

Factoring company reviews seem hard to come by. I have done some internet research ans was surprised to find that there was no real forum where feedback was shared.

The danger of course is that unhappy clients shout much louder than happy ones and as such the reviews can be very negative and not particularly objective. I also do not really see it as my place to ‘dish the dirt’ or ‘name and shame’ people or companies.

In my experience there is bad feedback about most invoice finance companies but I also understand that there are two sides to very story. Just because an invoice finance company says ‘no’ to a client doesn’t make them a bad provider yet some clients would disagree.

There are in fairness some common complaints that crop up about certain invoice factoring companies. Some are notorious for unsavoury practices relating to failing businesses while others are constantly criticised for lack of communication and failing to return calls. I will not name them but if anyone is looking for a new invoice finance company I would be happy to have a chat.

Equally if readers wish to share their experiences in a constructive manner then please feel free to post.