Know Your Money Power – You can now borrow up to 95% of your invoice value
It is true that invoice factors will lend up to 95% of an invoice value, you should know your money power. The words ‘up to’ are all-important as it depends on many factors. A lot depends on the terms of sale your company operates and the credit-worthiness of your customers.
You may also not require the entire advance amount offered to you, so you can take any value up to the amount approved. If every sale is to a reliable customer (business-to-business), then you are quite likely to get up to 95% of the invoice value, so know your money !
If there is the potential to return some or all of the goods, or there is a history of late payment, the invoice factoring company may reduce the percentage it advances. It must be highlighted that this depends on different factors, so each case is going to vary even if it is only slightly.
Most invoice factoring companies will lend hundreds of thousands, and even millions, to UK based companies. Indeed, invoice discounting or invoice factoring frequently form a considerable part of the funds used in management buyouts these days. For larger sums the smaller factoring companies like Regency might not be able to do the deal, but the larger ones like Bibby Financial will definitely be interested, which is a big hint to ensure you shop around when looking for a deal or get a broker on board to use their knowledge of the market.
How Does Invoice Factoring Work ?
How Much Does Invoice Finance Cost?
There are two cost elements typically associated with invoice finance. The first is the service fee. It covers the costs of having the facility including the admin and credit control within the invoice finance facility. This is charged as a percentage of your annual turnover and can range from as little as 0.1% to a maximum of 3.5%.
It is unusual to pay much more than this. The rate of this charge usually depends on the level of your turnover with higher levels of turnover receiving the lower end of the service charge. So, if your turnover is under £1m, don’t be too surprised if you are charged around a 3-3.5% service charge, get to know your money.
The second charge is the interest or discount rate. This is a daily percentage charged against the money you have borrowed so you only pay when you draw down on this. So if you borrow £10,000 for 30 days through invoice finance, you may be charged between 4-6% on that £10,000 for each day that passes where the cash advance is not paid back. This works in a similar way to the daily charges occurring in an overdraft facility.
This charge is only implemented when you are borrowing cash. Although the rates above should help as a general guide, it is important to remember that these figures can change with each individual business circumstance
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