Factoring Thought...

As specialist uk factoring brokers we know that whilst most factoring companies claim a fast flexible response with unrivalled personal service, not all deliver.

We know which do

factoring interest rates as a marketing tool

It is becoming increasingly common to see eye catching headlines in promotional material including such statements as “only 1% over Base Rate” or “an interest rate probably significantly lower than your overdraft” but headlines like that can be misleading as we hope to illustrate:-

factoring costs and charges comparison

Assumptions

Turnover	£750,000 pa
Average Debt Turn	50 days
Base Rate	4.5%

Debts	Funding	Interest at	Interest at	Difference	Difference
Outstanding	At 75%	1% over Base	2.5% over Base	£	% of turnover

£120,719	£90,539	£4,980	£6338	£1,358	0.18 %

As you can see in the above example the actual difference in cost between the headline grabbing 1% over Base and the more normal 2.5% over Base equates to 0.18% of turnover. This shows the importance of costing the whole package because if the more marketing savvy factoring company had quoted a factoring commission which was 0.2% of turnover higher than their competitors they would effectively be more expensive overall.

The other point to consider is the effectiveness of the factor’s sales ledger management and credit control. The above example assumes that the customers are averaging 50 days to pay their accounts but if through the factor’s inefficiency this was allowed to slip by a mere fortnight, the headline grabber’s interest charge would end up costing the same as the more efficient factor charging the normal rate.

The next two pages ask why some factoring companies offer such a poor service and how some factors deliberately unapprove debts to keep the funding levels down.

Factoring Solutions