• 31 Oct

    How Does Pricing Work For Factoring And Invoice Discounting

    We explain how pricing works for factoring and invoice discounting.Pricing for factoring and invoice discounting will vary between different providers, and depending upon the exact type of invoice finance product that you are taking out. That means both the amount of the fees that you pay will vary, and the way that they are structured.

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    We often come across prospects comparing prices between services that are not equivalent, that is a mistake. If you are a prospective user you need to understand the type of services that you are being offered to ensure that all quotes are on an equivalent basis.

    The other factor is that providers sometimes package their pricing so that the headline rate appears low, there may be other charges that are not so obvious which can lead to comparing a fully inclusive single fee offer, with just the service charge percentage from another provider (leaving out discount fee and other charges).

    How Does Pricing Work For Factoring & Invoice Discounting?

    If you want to understand how pricing works for factoring and invoice discounting, the first thing to appreciate is that there is not a single universal pricing model used across the sector. Sometimes fees are broken down into several parts e.g. service charges, discount charges and other charges e.g. for a CHAPs transfer. In other cases, they offer a single fee option. However, the single fee option may come at a slight premium.

    Invoice Finance Costing Formulas

    Most costing formulas will use similar types of information such as:

    • Your industry sector (this will drive the funding level and the risk weighting)
    • Product required e.g. does it include credit control or a bad debt protection service?
    • Annual turnover (pricing may be discounted for volume)
    • The amount you will be funded (this can drive the discount charge)
    • Number of debtors (these may drive workload for some products e.g. factoring)
    • Number of invoices (again these drive workload for some products)

    Please read our article that explains the components of typical receivables finance pricing, and it also has links to pages that give some illustrative price examples.

    Pricing Research

    We have undertaken a lot of pricing-related research studies, comparing the fees between different providers and different facility types. Parts of that research are published on our website for you to read: Invoice Finance Pricing Research.

    Other Information

    Please see our article: Average Cost Savings Found For Customers and our YouTube video: Explaining Pricing.

    * NOTE: Average savings updated post-publication: Average annual invoice finance cost savings found for customers.

    By Glenn Blackman

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Examples of funders we work with:

nucleus
muse
time finance
seneca
apollo business finance
giant finance