factoring costs - the extras

Factoring brochures normally talk about the cost of factoring being twofold with the factoring commission expressed as a percentage of turnover plus the factoring interest payable on the cost of funds “borrowed” but unfortunately it often doesn’t end there with a range of other less obvious charges hiding in the wings.

Many clients ask for same day transfer of funds from the factoring company and will have to pay for this service partly because the factor will be charged by their own bankers and partly as there is an element of inconvenience for the factor. Most factors will typically charge between £25 and £35 but we have been informed of instances where the client has been charged £80 per transfer.  One transfer a week at £80 will end up costing over £4,000 in a full year

Most factoring companies will set a facility limit and when this limit is close it signifies to the factor that it’s time for an internal review. We came across one factoring company that was quoting very low headline rates in order to appear ultra competitive and attract new clients but was not only setting very low facility limits but was also charging £2,000 to review and increase the limit.

Factoring companies prefer to see a spread of customers and will generally set a concentration limit stating that they will not fund any individual balance that is in excess of an agreed percentage of the total. It has come to our attention that two of the major independents have been setting fairly low limits and charging a fee every time they have been asked to fund in excess of the limit