Factoring charges - what should happen
Factoring charges comprise two separate costs. The first is the factoring commission rate which is normally expressed as a percentage of turnover and the second which is the interest rate, is usually charged at a rate of between 1% and 3% over Base Rate per annum on the "funds out" until such time as the factor is repaid.
Factoring charges - what too often does happen
In the face of ever increasing competitiveness in the factoring market some of the major names are trying on the one hand to appear competitive by quoting low headline rates whilst at the same time maintaining their own profitability by devising new methods of levying additional charges on their unsuspecting client.
In order to appear ultra competitive to startup businesses, one factoring company tends to offer a factoring commission rate less than half of what the competitors offer. Their facility also comes with an unreasonably low overall funding limit that they claim to be willing to review for a substantial fee and which if the company meets it’s sales forecast would have to be reviewed twice in the first year. This inevitably results in the company paying more overall than if they went with a factor who’s headline rate was higher but who set realistic funding limits and didn’t charge to review them anyway