Arrangement fees for factoring have crept into the industry in recent years. If you look back at historical comparisons between invoice factoring and overdrafts they would typically say that arrangement fees were payable on an overdraft facility and not on an invoice factoring facility. However, this is no longer the case. Some lenders charge an arrangement fee, a legal documentation fee and a ‘take-on’ fee. The take on fee is the service charge applied to the debts in existence when the facility commences. For example, if you have a debtor book of £500,000 and a service fee of 1% then the take on fee will be £5,000 on day one. Add to this the arrangement fee and legal documentation fee and the first day of your factoring facility is an expensive day at the office!!
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Factoring fees can be a significant cost for any business and as such it is important to reduce factoring costs wherever possible. We have a few tips to help you:
Review your facility – it is important to reciew your facility on a regular basis both with your own factoring company and with the market. As your business grows or changes it may well mean that your business qualifies for better rates. Typically the higher your turnover the lower the percentage service fee you will pay. Often businesses that experience rapid growth fail to review their facility and as such are paying a lot more than they need to. I recently spoke with a business whose turnover had tripled since they set up their facility. As a result we more than halved their total fees. Importantly the market also changes and as such better or more suitable products become available that may be more cost effective. If you want a full review of the market to see what savings you can make please contact the team at Smart Factoring Quotes today.
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