6 Ways to reduce your Invoice Discounting or Factoring Costs

Many businesses who have been using Invoice Discounting or Factoring for some time would benefit from asn independent review of the costs.  As businesses change either grow or shrink in complexity or people so the needs of any Finance Facilities they have change. Here at AJ Martin and Co. Ltd we have been advising businesses on cashflow issues including Invoice Finance or Factoring facilities available for some years. Below is a short list of the key issues to think about when reviewing your Invoice Finance or Factoring Facility. 

Give us a call if you would like us to review your current facility and advise how to reduce your costs.

1. Consider changing products - Invoice Disciountiing Facilites rely on your inhouse bookkeeping or credit controller to chase the debtors for payment whereas Factoring facilites utilise the credit control services of the factoring provioder. Depending on whether you are currently using invoice discounting or factoring you may be able to make a cost saving by switching products. If you are currently using a factoring facility, and you have existing resource within your business that could deal with credit control, it may be that you can save money on your invoice finance costs by switching to an invoice discounting facility where you do not receive a credit control service as part of the facility. Invoice Discounting Facilities are cheaper than Factopring Facilites due to the credit control services. Alternatively, if you are currently using invoice discounting and if you have existing credit control staff within your business, by switching to Factoring you will receive a credit control service as part of the facility and this may enable you to reduce your staffing cost by not employing credit control staff.

2. Review your Bad Debt Protection -  Are you insuring against bad debts, have you reviewed the cost effectiveness of this insurance cost as premiums change frequently as do the credit worthiness of your customers. Are the credit limits provided by your provider adequate or maybe too much. As premiums are based on risk minimising the credit limits will reduce your costs. A review of insurance costs must include first losses, concentration limits and uptodate management accounts.

3. Drive down the "other costs" associated with invoice finance - There are a number of other charges that may be applied by a factor or discounter. An example of this is if you take payments by CHAPS rather than BACS. A BACS transfer is often provided without charge however, a BACS transfer will take longer to clear, and credit funds to your account, than a CHAPS transfer. If you are able to plan ahead your cash flow requirements you may be able to switch from using one to the other in order to reduce the cost associated with your facility. You should also review the other costs detailed on the statement provided by your invoice finance company (normally each month). You can identify the type of other charge that you are incurring and seek to drive them down. For example, if you being charged re-factoring fees, in respect of overdue debts, it could be cost effective to spend some time chasing these invoices in yourself, in order to avoid paying these penalty fees.

4. Review your exclusions - Most invoice finance companies have the ability to exclude certain transactions from your factoring or invoice discounting facility, even if it is operated on a whole turnover basis. For example, certain types of transactions may be of no interest to the factor so they may exclude them which can also been known as not notifying those particular transactions. If you have specific, identifiable parts of your business' invoicing that you could manage without receiving funding against e.g. particular customers or types of transactions, you might consider asking the invoice finance company to allow you to make those non-notifiable, or excluded, under the terms of the facility. This may prevent you from needing to pay a fee in respect of those particular types of invoices. 

5. Shop around and renegotiate - There are a number of providers of both factoring and invoice discounting facilities. It is a competitive market and a new provider will often be able to quote to you better rates than your existing facility. Similarly, if you aware of what is available on the market, your existing provider may be prepared to negotiate your existing rates in order to retain you as a client.

6. Switch between whole turnover and selective invoice finance or Spot Invoice Discounting

  Most factoring and invoice discounting facilities operate on what is known as a "whole turnover" basis. This means that all of your invoices are automatically captured under the invoice finance arrangement and the charges are likely to be determined as a percentage of the value of your invoicing. If you do not have a consistent requirement for cash within your business, for example if you are subject to seasonal trading peaks and it is these that you require funding for, you may be better off considering a selective facility where you only factor or discount certain invoices, hence reducing the cost of the facility overall.

Call us NOW on 0845 643 4722 to arrange a review of your Invoice Finance or Factoring Costs.