Cost of Factoring

Cost of Factoring and Invoice Discounting

A invoice Factor, Discounter or Factoring Company charges a commission or fee for performing the credit and collection function for Factoring and for purchasing the client's receivables (only for Invoice Discounting, you run your own ledger confidential with Invoice Discounting) with or without recourse to the client for bad-debt losses for both Invoice Discounting and Factoring. The invoice Factor or Discounters commission (fee) for service usually ranges between 0.3% and 3% of sales (fee). A number of conditions will determine the costs for service such as:

• The nature of the business, including styling considerations, seasonable aspects, stability of products, whether the customer is a manufacturer or wholesaler
• Annual sales volume of client. As volume increases, the percentage charged will usually decline
• Average size of order processed. Large orders are no more time consuming to process than small orders and produce more revenue for the factor. Therefore, the factor's commission rate may decline as the size of the individual orders rises
• Average annual sales volume per customer. As this figure rises, there is less work and follow-up for the factor, since the client's business is becoming concentrated in few accounts. The commission rate will tend to decline
• Credit worthiness of the client's customers. If the risk is relatively small, the factor's commission may be lower
• Client's selling terms. If they are long, the factor must wait to collect its receivables, this would require a higher fee
• Other services such as billing, may be provided by the factor that will increase costs and raise the charge to the client

Additionally, the factor or invoice discounter charges interest (fee) on funds provided. This borrowing is typical this is charged a rate above the Bank of England base rate. To find out more and obtain indicative fees for Factoring and Invoice Discounting use our Free indicative interactive quoting system.

How long are you clients taking to pay you? How much is it costing in interest charges. Use our FREE interactive debt turn calculator.