• 16 Mar

    Invoice Finance Price Quotes And Product Information

    Invoice finance price explained.

    Invoice finance price is explained in depth in this post. It covers:

    • How price works and the 4 different approaches.

    • How to calculate the costs.

    • Examples of pricing for different products.

    • How costs are different between invoice finance companies.

    Quotes And Product Information

    If you are looking to get some quotes please use our search tool:

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    We have also published a broader explanation of invoice financing which will give you general information about these products work and their benefits.

    For more detailed product information please see our free guide to receivables finance.

    How Invoice Finance Price Works

    The way that invoice finance companies charge for their services is not consistent across all the various different providers. There are variations in the both the structure of the charges and the level at which prices are set. There are no pricing controls across the sector, so each provider is at liberty to set their own prices. Some providers employ a costing model to arrive at their quote (not all do this), but even then providers will frequently deviate from their recommended costing in order to compete with other quotes.

    There are four different approaches that you may come across. They are as follows:

    1) Traditional Pricing Approach

    The traditional approach to pricing and invoice finance facility is to have three different types of fees:

    • Service charge (called Administration Charge for invoice discounting facilities).
    • Discount fees.
    • Other charges.

    The first is the service charge, which is typically a percentage of turnover. The second is a discount charge which is a percentage over base rate, charged against the funds in use. The third category of charges is the other charges that may be levied for services such as making an over payment or sending you a payment by CHAPS transfer.

    2) Single Fee Pricing

    Some providers offer the option of rolling all these charges into one. The fee is charged as a flat percentage of turnover, without a separate discount charger other fees (in some cases there may be additional fees, You need to check with your provider).

    The benefits of this approach are that it makes the charges very predictable. However, providers do tend to charge a premium, over the traditional model of pricing, in order to offer this type of structure.

    3) Flat Fee Pricing

    Flat fee pricing is similar to single fee, but the charges are a fixed amount, normally levied each month. This may also be used in conjunction with discount fees and other charges so that a provider can offer the traditional pricing model but with a flat fee service charge element.

    A flat fee approach can make the charges even more predictable in that they are no longer linked to the volume of turnover that you transact. With a typical pricing approach, where a percentage of turnover is charged, the fees may increase and decrease in line with the amount of turnover that is transacted each month. The fee structure means that this is not the case, the same flat fee is charged each month, regardless of the volume of turnover that you transact. One point to note on this is that should your turnover increase dramatically, it is highly likely that your provider is going to want to be negotiate the flat fee that is being charged.

    4) Discount Charge Only

    Some providers, notably in the selective invoice finance sector, only charge a discount fee on the funds in use. There is no service charge as such. At first you may imagine that this is going to be a cheaper option, but it's not necessarily the case. It may be that the discount margin is higher in order to account for the lack of a service charge.

    If you are paying discount charge only, the facility works as follows. You submit the invoices for funding, the funding is provided and the discount fee starts to accrue on a daily basis. In order to work out the level of the charge, you would need to understand the formula that is being used by the provider. Typically, this will be to charge a percentage over base rate against the funds in use on your facility, calculated on a daily basis. Be careful though, not all providers work out their charges using the same number of days per year, in some cases this will be adjusted such that it slightly weights the charges in favour of the provider.

    Calculation Of Costs

    The calculation of your costs will change in line with which of the 4 approaches your funder is using. I have written a general overview of how you calculate the costs and I have also written 2 more in depth articles which include examples of how service charge and discount work.

    Additional Fees And Other Charges

    In addition to the basic service charge and discount charge described above, many financiers have a tariff of additional charges that are levied based on events, e.g., if you request an over payment. You should ask your financier for their tariff of additional fees and other charges, so that you can understand what all the added extras might be. They may be specified in your agreement, but it is more likely that the agreement only references the tariff, which can be varied. Some companies do not have any additional charges, so be careful when selecting a facility.

    This is a list of common additional charges - NOTE that not all providers charge all of them (or even any of them), also some only apply to specific product types:

    • Set Up Fee - also known as a "commitment fee" or "arrangement fee", this is usually a one-off charge when you commence the facility. For a small facility it could be £250 to £500 with some funders. Some don't charge anything, it can be higher for larger facilities.

    • Debenture Charge - a one off fee for the set up and registration at Companies House of a Debenture which is part of the funders security over the company, can be £250 where it is charged.

    • Systems Fees - there may be a fee to set up (and in some cases train the users) on the system required to access and manage the facility. This may be a one off charge or a regular usage charge, e.g., a monthly fee. Where there is a sales ledger upload facility, there may be an additional fee if the funder does not already have an existing integration with your accountancy software.

    • Charge Per Invoice - in some cases an individual fee per invoice can be charged.

    • Trust Accounts Fees - these can be £10 - £15 per month for the provision of a trust account into which an invoice discounting client receives, or banks, customer payments.

    • Minimum Fees - these relate to the service charge. An annual or quarterly minimum level may be set upfront. If this threshold value for the annual or quarterly service charge is not exceeded, the balance is debited each quarter or annually. Note that there can also be a minimum base rate applied to the discount charge. In those cases, if bank base rate falls below the minimum, the minimum value is applied.

    • Refactoring Fees - this is charged as your invoices age. There may be an agreed threshold at which an additional percentage is debited. In some cases (not all lenders charge this) 1% of the invoice value is charged (it can be as high as 2% in some cases) as it has reached an ageing limit (also called the re-factoring period).

    • Unused Line Fees - a fee for the unused proportion of the funding line (not many charge this).

    • Debtor Credit Check - a fee for a debtor credit check or limit to be written, or reviewed.

    • Debtor Schedule Fees - there may be fees for manually processing a debtor schedule, or for administration errors.

    • Payment Fees - many payments are sent free of charge, but there can be a fee in certain circumstances e.g. requiring a CHAPS transfer (same day value), or payments in foreign currency. 

    • Audit Fee - a fee to conduct an audit of the clients bookkeeping to ensure that it is in line with the figures held by the invoice discounter. There can also be a fee if the visit is cancelled at short notice. There may be a fee for a survey conducted prior to the customer becoming a client of the funder.

    • BDP Element - the bad debt protection element of the fee relates to the provision of bad debt protection. It is often included within the service charge, but some providers separate the fee. This will not apply to recourse facilities (without bad debt protection).

    • Overpayment Fee - a fee for a payment that exceeds the allowed fundng formula agreed with the funder. This can be a percentage of the excess availability for the time that the funding is used. There may also be a fee if the payment account exceeds the available funds without being authorised, such that the facility becomes overdrawn.

    • Facility Review Fees - these may be charged for a review that leads to a permanent increase in the facility, or for a temporary increase.

    • Collections Fees - these could be for sending a solicitors letter, or a statutory demand to a debtor. Litigation may also be charged where required (sometimes at a margin over the cost to the financier).

    • Penalties - there may be penalty fees for breaches of the agreement e.g. banking of debtor monies into the client's own account.

    • Unpaid Cheque Fees - for debtor cheques that are returned by the debtors bank, also know as bouncing (this is known as RDPR (Refer To Drawer Please Represent) and RD (Refer To Drawer)).

    • Payroll Fees - there may be separate charges if the funder is managing your payroll, or providing a pay and bill service.

    • Termination Fees - fees to terminate the facility which may include fees for early termination. If the funder has to "collect out" the funding provided from your sales ledger together with their charges, e.g., in the case of client failure, there may also be a collect out fee. The collect out fee can be percentage of the funds collected.

    Although the list may seem long, remember that in some case all the fees are rolled up into a single charge, or these charges may not be relevant to every type of facility. We can help you avoid many of these additional fees by introducing you to the right providers.

    Examples Of Pricing For Different Products

    When you are looking at the possibility of using these types of services it may be tempting to look for prices quoted to similar businesses, as an example of what it is likely to cost your company. Whilst this will give you a rough idea, all quotes are individual to the client. It is best to get quotes for your company as you can do this quickly and without it affecting your credit history. Funders will treat your request as confidential so you have little to lose by asking for a quote.

    Quote App

    One of the companies on our panel of finance companies offers an app based receivables finance online quotation service that only requires the answer to 8 simple questions. The app returns a funding decision and quote, in under a minute, and you have no obligation to go ahead. If you don't want to speak to anyone about your situation, and just want to understand the pricing, that could be a good option to try. Their invoice finance pricing app is embedded into this website.

    Please note that it may not be the cheapest quote available in every case. If you are seeking the rock bottom costing, a firm of brokers will be able to conduct a marketwide search for you to be able to compare quotes. Also, if you are not accepted by a particular provider, we may still be able to find you an alternative provider that will offer a facility.

    Invoice Finance Price Examples By Product And Size

    The size of your business and the type of service that you require are the key components of cost. Workload and risk factors will also be taken into account, but we have some examples of typical pricing according to the product that you want and the size of your company. If you are considering a factoring service (funding and credit control) these are typical factoring quotes according to size. For invoice discounting (funding without credit control) these are typical invoice discounting prices.

    Construction And Selective

    Construction finance and selective invoice finance can both be priced differently. Our free construction finance guidebook includes links to examples of quotes for the service. We also have a separate example of selective pricing which you can find on our product information page.

    How Costs Are Different Between Providers

    We have undertaken a lot of receivables finance pricing research, which has identified the scale of the differences in funder's approach to costing. These are some of the major differences that we have identified.

    Pricing Differences

    You will find that prices differ between providers and between different products. We have sourced quotes for customers from all over the sector, and our research shows there are some big swings in cost from the cheapest to the most expensive quotes. In some studies the difference has been significant. We looked at an invoice discounting client and identified an 86% swing between the top and bottom of the market. In the case of one factoring client, the most expensive quote we found was 2.7 times higher than the cheapest.

    Minimums

    There are other factors that influence cost, such as the funder's approach to minimum fees. These can be a fraction of the anticipated annual charges, or they can be set to more than the anticipated fees, so they are sure to come into effect. This can have a big impact on what you pay.

    We hope that this article has given you some appreciation of the issues that affect invoice finance price.

    By Glenn Blackman

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Examples of funders we work with:

apollo business finance
seneca
berkeley
skipton
kriya
bibby