Is Factoring Expensive? Well this is the perception of many business owners, but in reality Factoring can represent good value for money.
Is Factoring expensive?
The key reason why Factoring is seen as expensive is because it is often compared against other forms of funding products such as Loans or Overdrafts.
Factoring is also seen to have a historical high value in cost. The costs of Factoring have reduced significantly over the years with the adaptation of new technology.
In reality Factoring as a financial service includes many different features and benefits which come with additional costs. The additional features of a Factoring facility are integral to many businesses and so the benefits provided are worthy of the additional cost.
What are you comparing Factoring against?
If you feel as though Factoring is expensive then you must be comparing this against something to make this assumption.
Overdrafts / Loans
When comparing Invoice Factoring the main comparible is against overdrafts or loans.
The reason for this is that they all provide a Business with funding and therefore many businesses do not see a difference in these three types of service.
In the main overdrafts and loans can be a cheaper option but they do not allow for the flexibility which Invoice Factoring allows.
Once a loan or overdraft is put in place then the limit usually remains in place until the facility is repaid in full. If any increases are required then this would usually entail a whole new application to be completed. With Invoice Factoring should any increases be required then this can be completed at the click of a button without any major issues.
So on a pure borrowing basis then yes a loan or overdraft can work out cheaper than using a Factoring facility.
Don’t forget the credit control?
Many Businesses when comparing the costs of Factoring do not build in the cost of the credit control function which is included.
Now this can turn Factoring from the perception of being expensive to actually being good value for money.
Let’s say your business was to employ a full time credit controller. The costs of a full time credit controller are approximately £20k in Manchester rising to around £30k in London.
Let’s say a Factoring facility costs a business around £10k per annum then this type of facility would work out to be more cost effective for the business.
Don’t forget the bad debt protection?
Another cost to factor into the equation is Bad Debt Protection. This will be added to your Factoring facility for as little as 1% per invoice. This is a very useful additional especially if there is some volatility in your business sector.
Imagine having turnover of £1mil and having a debtor of say £200k go bust on you. For the sake of 1% (or £10k) you could have protected the business against this loss.
Lower your Factoring costs!
A good Invoice Factoring broker like All Star Funding Solutions knows the market very well. We are in constant dialogue with all our lenders and we know which lenders are providing the best rates.
Knowing the market is critical to secure the best prices and so we can help your business obtain the funding which it needs at the right price. This saves you time and money searching the internet or making contact with numerous lenders without success.
How to apply for Invoice Factoring?
Applying for Invoice Factoring is very simple. Click the link below or call 0161 8211478 to speak with one of our specialists.
Finally as members of the Financial Intermediary and Broker Association you can be assured of a great service. https://www.fiba.org.uk/
Finance approval is subject to status and terms and conditions apply.