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Invoice Finance Costs

Invoice Finance Costs can be hard to understand and even harder to compare between lenders. This is not helped by lenders having different ways of charging and potentially having different names for the same thing.

Importantly when looking at invoice finance costs it is important to look beyond the headline rates as these can be misleading. Some lenders will only charge a service fee and discounting fee while others have a list of additional fees as long as your arm.

Let’s have a look at a list of fees that you may encounter. Remember that not all lenders charge all of these fees.

Headline Fees

Service Fee – this is the charge that the lender applies for the administration of the facility. It is typically shown as a percentage and this is applied to the gross value of each invoice. Some lenders now have flat service fee which can be shown as a monthly, quarterly or annual fee.

Discounting Fee – this is the cost of borrowing money. It is comparable to the interest you would pay on an overdraft facility. It is typically shown as a percentage margin over a base rate.

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Additional Fees

Over and above the headline rates are other fees and charges that you need to be aware of. These include:

Arrangement Fees – this is a fee the lender charges when they set up the facility.

Audit Fees – some invoice finance lenders will charge for the cost of auditing your business while others will include this service within the service fee. It is therefore important to understand if the lender charges additionally for audits and if they do to understand the cost of each audit and the frequency.

Base Rate – different lenders will use different base rates. For example some will use the Bank of England base rate while others will use 3-month or 6-month LIBOR.

CHAPS / Same Day Transfer – all lenders will charge for same day transfers but the amount charged can differ dramatically.

Debtor Limit Fee – some lenders will charge you for checking a limit on a new debtor while others include this service.

Internet Access Fee – most lenders operate an online system but some actually charge a monthly fee for the privilege of using that system. Most simply include this in the service as would probably be expected.

Minimum Base Rate – some lenders include a minimum base rate which means that the comparison of discounting fees should take this into account.

Minimum Service Fees – most lenders will include a minimum service fee in the agreement. If your turnover does not reach the levels expected the minimum fee will kick in and render the service fee percentage irrelevant.

Survey Fee – a survey is essentially an audit that takes place prior to a formal offer of finance being issued. Some lenders will do this free of charge while other will charge for this. Of those that charge some will refund the charge if they are not able to provide a finance facility.

Take-on Fee – at the start of the facility the service fee is applied to all debts that are on your debtor ledger.

Comment

The list of invoice finance costs and fees is not exhaustive but it does give you an idea on how two invoice finance facilities with the same headline rates can differ dramatically in terms of overall annual cost.

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