Factoring interest rates are dropping – or are they?
Factoring companies are now advertising interest rates of 0.5% over Base Rate but many people reading the adverts fail to realise quite what a clever marketing ploy it is.
Factoring Interest Rates
Taking a typical small company with an annual turnover of £500,000 the customers averaging 60 days to pay and the factoring company funding at 80% of invoices the difference between 0.5% over base rate and a more usual 2% over Base Rate works out to £966 per annum.
Whilst on the surface that may seem to be a worthwhile saving it actually equates to 0.16% of turnover so if the factoring company offering the cheap interest rate has a higher factoring commission rate than the others, that headline catching interest rate will be more than offset by a higher factoring commission charge and the company could end up paying much more in factoring costs.