• 25 Mar

    Finding The Cheapest Invoice Finance Options

    In this article, we’ll show you how to find the cheapest invoice finance options and explain why price alone shouldn't be your only deciding factor.

    CHECK FOR THE CHEAPEST QUOTE

    Firstly, we should point out that choosing any form of business funding based on the cheapest cost alone might not be the wisest option (see below for more on why).

    Finding The Cheapest Invoice Finance Options

    Assuming that you have taken into account all the other factors that might affect which provider to choose, the remainder of this post will focus on how to find the cheapest options.

    See our product page for general information about invoice finance.

    Overview Of The Costs

    Guide to finding low-cost invoice financeHow the costs work is covered extensively in our guide to invoice finance costs which includes examples of typical pricing. This will explain how pricing is structured for these products.

    How To Compare Costs

    Once you have more than one quote you need to make a uniform comparison between those quotes to understand the relative cost. We have produced a price comparison tool that will enable you to make that cost comparison between different quotes. 

    What Makes Invoice Finance Cheap?

    Ok, so having covered understanding the costs and how to compare them, what is it that makes an invoice finance quote cheap?

    • Low fees - a low service charge or administration charge is what people tend to focus on. Whilst it is the headline rate, focusing on it exclusively could overlook other aspects of the charges that could be more expensive than other quotes.
    • Low discount charge - this is the other component of charging that clients focus on. It is what drives the cost of funds so it is an important aspect but it needs to be considered in conjunction with the service fees and any ancillary charges to get the full picture.
    • Being able to control fees - in some cases clients opt for spot factoring so rather than submitting all their invoices for funding. This can give an element of control over costs but the average cost can be loaded in favour of submitting all your invoices rather than just a few.
    • No hidden charges - check the tariff of other charges as there could be hidden fees that will impact your situation. For example, if there is a refactoring fee this could frequently feature if your invoices tend to be paid late regularly.
    • Flexible contracts - consider what happens if you want to leave the arrangement. You may be able to secure lower fees for a longer contractual term but if you choose to leave early there could be penalty termination fees.
    • No minimums or reasonable minimum fees - if there is no minimum fee it could be a good thing if your turnover doesn't develop as planned. However, most minimum fees are set at levels that should not come into play unless you significantly underperform.
    • High prepayment levels - if your facility has a high prepayment level that additional funding could mean that you don't need to use other sources of funds, e.g., credit cards, which could be much more expensive to use.

    These points illustrate that there is not a simple single measure that determines which is the cheapest quote. Typically, a user will need to look at multiple facets to reach a judgment on how cheap a particular deal is.

    Hidden Or Lesser Known Costs To Watch Out For

    Returning to the point about hidden charges, these are a few fees to watch out for:

    • Refactoring fees - this is an additional element of service charge levied after a debt reaches a certain age. This can ramp up the fees if some customers pay late.
    • Set up, renewal and review fees - again these are common and need to be factored into your comparison if they are present.
    • Transactional fees - some providers charge for events such as processing debtor credit applications, undertaking audits or making payments. These need to be understood as they could increase costs.

    For more about the terms see our article about Understanding Your Factoring Agreement.

    Product Structure

    Some elements of product structure can affect costs:

    • Bad debt protection - whilst it is a useful product it typically adds a CPE (credit protection element) to the cost.
    • Factoring vs invoice discounting - in some cases the addition of the credit control service with factoring a large number of debtors may well add cost although, in many cases, invoice discounting adds a risk premium. Check how the product choice affects your quotes. Low-cost factoring could be a better option in some cases whilst the lower workload of affordable invoice discounting may be more appropriate for businesses with larger sales ledgers.
    • Selective vs whole turnover - whilst selecting invoices to fund can seem like the ultimate cost control approach, it tends to be proportionately more cost-effective to submit all your invoices.
    • Ancillary services - adding on services such as payroll management can increase the cost.

    See our full Invoice Finance Guide for more product information.

    Providers Offering Cheap Invoice Finance Options

    There are over 100 invoice finance companies in the UK. They all take a slightly different approach to pricing so there will be variations between providers. You will need to shop around or use a broker service to find cheap invoice finance options.

    Comparing Providers: Drawbacks - Why Cheapest Isn't Always Best

    There are a number of aspects of your decision-making that mean that the cheapest isn't always the best. When seeking budget-friendly invoice finance consider:

    • Service levels - the service from all providers is not equal, particularly if you want them to undertake your credit control. Finding a reputable provider could prove to be more important than identifying the cheapest invoice finance company.
    • Funding levels - again not all funders provide the same amount of funding. In many cases, clients are more in need of the right amount of cash regardless of the cost.
    • Security required - some providers don't take as much security as others. Some don't always take personal guarantees. This can outweigh pricing if you are concerned about providing a guarantee.
    • Product features - if you need extra services like payroll this could outweigh any pricing premium for the service. It may well prove to be cheaper than sourcing payroll management services independently.

    Which Clients Qualify For The Cheapest Rates?

    Typically, the lower the risk and the workload the lower the rates quoted.

    • Low-risk clients - are those who have established businesses with stronger financials. Also, using products that include credit control services places the funder in a more secure position (as they have control of the sales ledger) which can lead to a more relaxed pricing approach.
    • Low-workload clients - are those that have fewer debtors and invoices, particularly if the funder is carrying out the debt collection. Products that don't involve managing the sales ledger can also be cheaper to run for the provider.

    Providers often reserve the lowest rates for businesses with strong customer bases, low debtor days, and a clean credit history. Industries with predictable payments (like recruitment or manufacturing) also tend to attract better rates.

    Case Studies Where We Found Cheap Pricing

    These are case studies where we have found clients cheap pricing saving them significant amounts of money:

    FundInvoice has a great track record of finding savings. Read about the average cost savings we found for invoice financing clients.

    Alternative Options

    In some cases, alternative business finance or selective invoice finance might be cheaper for short-term or one-off needs. It can be worth exploring every option.

    Tips To Secure The Cheapest Finance

    These are a few tips to help you secure the cheapest finance:

    1. Be realistic about growth. Exaggerating your number might get a lower quote now but it will likely increase if you don't achieve the numbers.
    2. Improve your sales ledger position. Getting your sale ledger under control can present a better picture to a funder and hence achieve better rates.
    3. Negotiate terms. Don't take the first quote, negotiate for improved rates - perhaps consider what else you could offer to reduce rates, e.g., offering PGs or considering more secure products like factoring.
    4. Shop around. Compare providers as they don't all offer the same rates. Consider using a broker to search the market for you. Call us for help on 03330 113622.

    Summary Of The Key Points If Seeking The Cheapest Invoice Finance Options

    To summarise, to find the cheapest invoice finance options consider:

    • Consider all aspects - think about what makes it cheap, is it just the pricing or are there other factors that could add additional fees in the future, e.g., termination fees if you choose to leave?
    • Watch out for hidden fees - and consider the role of product structure in finding cheaper deals.
    • Make sure that other aspects are not going to outweigh pricing, e.g., funding levels or service delivery.
    • Check all the contract terms - and the tariff of additional fees before you commit.
    • Use a broker - that has a great track record for finding cost savings.

    Call FundInvoice on 03330 113622 if you need help finding the cheapest invoice finance options for your company.

    By Glenn Blackman

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Examples of funders we work with:

giant finance
time finance
skipton
ifg
closebrothersinvoicefinance
leumi abl