Factoring & Invoice Discounting - Factoring Costs & rates.
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- Checklist
The Costs
The two main fees when it comes to factoring are twofold
- service fee
- interest on the amount received from the factor.
Service Fee
Outsourcing your sales ledger to the factor is included in this fee which includes these services :-
- Presenting invoices to your customers.
- Credit checks on your companies.
- Credit Management.
- Retrieving payment on outstanding invoices.
The service fee is a percent charged against your turnover. The fee usually varies from 1.5 to 3 % over base rate. taking these resposibilities from your company time can help you run your business and releases you from chasing up non payers. Credit control management, administration charges, and the running of your sales ledger, are related to your annual turnover.
- Your companies annual turnover.
Typical fees range from 0.70 to 3.0 % of turnover. - The amount of current and outsatnding invoices.
*Typical fees may be as little as 1% if you have £1,000,000 turnover. - The total amount of customers that you have. (no one cutomer should account for 25% approx of your business
Interest Charge.
The factors base rate usually comes into line with the Bank of England's base rate and the interst charge to you is proprtional to the amount of the invoice the actual % is the same or cheaper than a bank overdraft (after all you are providing security).
*For invoice discounting, 0.15 to 0.7 % of your companies annual turnover.
Non-recourse factoring protects your business against bad debts which can incur credit protection charges your factor with quantify the risk associated and charge accordingly.
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