How To Reduce Factoring Costs


Factoring clients will often complain that their existing factoring facility is too expensive. Factoring and invoice discounting facilities will always have significant costs associated with them but there are ways to reduce these costs dramatically. It also important to consider how your business would perform without an invoice finance facility. What would be the impact on both the cash flow and the profit and loss account? These must however be considered together as in an ideal world such facilities will providing working capital for growth, improved cash flow and increased profits. These increased profits would probably not be achievable without the invoice finance facility. We will take a look at a few tips on how to reduce your factoring costs. It can be done by changing your facility and also by managing your facility in a smarter way. Let’s look at a few suggestions:

Undertake a full market review

In the first instance why not contact us and undertake a full market review. We will focus on total costs and also on structure ensuring you have a cost effective factoring facility that meets your cash flow requirements.

Headline rates can be misleading

Just because a lender has the cheapest service fee or discounting fee does not mean they are the most cost effective provider for your business. Undertake a proper review and focus on total costs.

Move from factoring to invoice discounting or CHOCS

If you are doing the credit control instead of the lender providing this service then you may get a reduced service fee.

Ask your existing factoring provider for a pricing review

Remember that turnover is a major variable when pricing a factoring facility. The higher your turnover the lower the percentage service should be. So if your turnover has increased dramatically you could be due a price reduction. This could be a good reason to review your facility in full as your lender should really approach you with a price reduction.

Are you using your full facility limit?

Some lenders require a certain return against the money they allocate to you. If you could function with a lower limit you may well be able to get a reduced fee structure.

Are a lot of your monthly costs because of disbursements?

If so it could be a good reason to change providers or to manage your facility better.

Move from same day CHAPS transfers to BACS

If you are paying for same day CHAPS transfers these can really add up. Can you manage your cash flow more pro-actively so that you can utilise free BACS transfers that take 3-5 working days?

Do you manage your factoring account and bank account effectively

Ideally you should run your bank account as close to zero balance as possible. If you have a large cash balance in your bank account the likelihood is you are paying unnecessary discounting fees on your factoring account.

If you do feel that you are paying too much or simply want a full market review undertaken please contact Funding Solutions today on 0845 251 4040 or try our free invoice finance quote