Article 16

How to compare factoring companies

Invoice finance can be confusing

Sometimes it can be hard to know exactly what you’re paying with a factoring or invoice discounting contract.

An invoice finance provider might give you a lengthy, detailed proposal, listing lots of different fees, such as “arrangement fee”, “service fee” or “audit fee”.

It’s understandable if you’re confused by your quote or contract. There are so many different fees quoted by the traditional invoice finance providers, for example:

  • Arrangement fee
  • Service fee
  • Non-recourse fee
  • Annual review fee
  • Retrospective fee
  • Refactoring fee
  • Extended service fee
  • Discount charge
  • Audit fee
  • Trust account fee

If you’d like our help understanding your factoring quote, do contact us and we can put together a comparison against MarketInvoice for you within hours.

Here are some handy explanations behind your factoring quote:

Advance rates, explained

Sometimes invoice finance providers will tell new clients that they can “receive up to 85-90% of their invoice in advance”.

Remember, “up to” 85-90% often translates into a lower advance rate than advertised.

If you’re looking at entering into a facility, you might also receive a “teaser” term sheet from a factoring company. Bear in mind that once the invoice finance provider has all the details it needs about your business, these terms are likely to change.

Common pitfalls

Here are some common issues with quoted advance rates:

VAT: You might be given an advance rate on the net-of-VAT amount of your invoice. So if, for example, you sell an invoice worth £100k (including VAT) and your advance rate is 50% of the net-of-VAT amount, you end up receiving 50% of £83k, not of the full £100k. That’s only £42k in your account, equivalent to 42% advance rate.

Facility limit, or Prepayment Review Level: If you’re quoted a facility limit of, say, £100k (with an advance rate of 80%), and then want to sell an invoice worth £200k, bear in mind that the maximum you’ll drawdown will be £100k (your limit), giving you a real advance rate of 50%.

Concentration limit: Although it’s great news for you if one of your customers starts ordering more from you, that might be a problem for a factoring provider. They may be worried about “concentration risk” if any one customer hits over 10% of your ledger. If this happens, your factoring provider may give you a lower advance rate on that customer’s invoices.

Exclusions: Do you trade overseas? Does your contract imply that your customer can return some of your goods? Can they withhold payment to you for whatever reason? These things might mean you get a lower advance rate, since factoring companies see these as potentially riskier transactions.

Demand transparency

At MarketInvoice we never give you a ‘teaser’ rate.

On our website you’ll see what our average advance rate is, not the best case scenario. We also make sure you fully understand our simple fees before you make any commitment to use us.


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