The Invoice Finance market has always been a competitive one but now more so than ever. The last few years have seen a lot of new players entering the market. There was a time when invoice finance was the only alternative to a bank overdraft but with lots more innovative finance solutions becoming available we’re finding that lenders are slashing rates and under cutting competitors to win the business and increase their market share.
I’ve recently been looking for an Invoice Discounting facility for a business with a turnover of £8m in order to improve cash flow. I am seeing service charges as low as 0.19% with no monthly minimum fee and interest at 1.75% over base and that’s not from the High Street. I’ve also seen rates for a Full Factoring facility with a £100k line as low as 0.65% and 2.75% over base.
What needs to be considered though, when headline rates are low, is the other fees that the facility attracts. For example, look at the refactoring charges (this is an additional fee applied as a percentage of the invoice which exceeds the? recourse period). Lenders would usually charge an additional 0.5-1% on such invoices however I have seen this as high as 1.3% recently.
I do always emphasise to my clients that it’s not all about the price. There also has to be a real business need for a cash injection. This can be a short term requirement for example an unexpected situation or to capitalise on a one-off opportunity. There’s also the scenario whereby funds are needed for ongoing working capital to improve the business, for example diversification or launching new initiatives that require funding.
As a broker, I not only research the market for the best rates, but I constantly seek to gain feedback about all lenders and how they perform in servicing the client once they are on board.
Lenders also seem to be offering more favourable commissions to brokers as an incentive to pass more business to them. Whilst a nice upfront payment or an increased percentage commission is great, ultimately, a broker should want to be confident the client will be happy with the lender and stay with them for a long time.
After all, the aims of this type of finance are to also avoid the hassle of having to collect payments or late payments, leaving more time for my clients to spend more time focused on growing and developing their business.
So, it would appear that now is a great time to review your current Invoice Discounting / Factoring facilities and see what other options are out there.