Sarah MacInnes' latest blog for Optimise looks at the details of the common charges of an invoice finance facility and what clients using the service need to know.
The perception of an invoice finance facility having high costs may be attributed to the fact that in most cases these facilities do not have one consolidated charge. There are several charges, some of which are unavoidable and others that can be avoided or reduced.
The purpose of this article is to provide details of the common charges of an invoice finance facility. Some funders do provide their Clients with a breakdown of each charge on their monthly statement but others do not. In these cases, it can be a manual process to calculate what a business has been charged in total for their facility.
Charges may vary across funders, but these are the most common ones.
- Service fee/Admin charge this is charged as a percentage of each invoice assigned to the funder.
- Discount this is the interest charged on the amount borrowed and is calculated daily.
- Annual renewal fee a facility will be reviewed by the funder on an annual basis. The funder will charge for the review and renewing the facility for the following year. This is usually charged as a percentage of the Review Limit / Current Account.
- Charge for changes to the facility if a Client requests an increase in the limit they can borrow (Review Limit / Current Account) there will be a charge for this. The way to manage this charge is for a business to plan their funding requirements when their annual review is completed. This request for an increase will then be covered by the annual renewal fee.
Charges that can avoided / controlled
- Refactoring this is charged by some funders on a Factoring facility. It is a percentage charge against all unpaid invoices after 90 days. It is charged monthly until the invoices have been paid and can be as high as 1.5% of the value of the invoice. By ensuring that overdue debt is kept to a minimum a business can control this fee.
- Disbursements the invoice finance funder may charge for items such as reassignments and credit notes being raised. Each funder should be able to provide a list of these additional charges to their Clients.
- Overpayment charges if a payment if requested above the facility limit or for more than is available a charge will be made.
- Breach fees this is charged if a Client breaches the facility, for example, assigns an invoice too early or banks funds from a customer for an invoice that has been funded.
If you need help in understanding the fees you are being charged or would like to understand how you can monitor these please contact us either through the website, by e-mail on info@yourinvoicefinance.co.uk or on 0808 178 0024.
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