Other Costs
There are further costs involved with a facility,
and unfortunately some providers are less than transparent with their
additional charges. These can include:-
- Re-Factoring charges - With an un-insured
facility when a debt reaches a pre-agreed age a fee is charged
monthly, until either the debt is collected or written-off. Many,
but not all factors, make this charge.
- Funds Transfer Charge - a fee levied on
draw-down requests. If you draw from the facility by same
day transfer several times a week, these can mount up.
- Audit Fee - a charge for the quarterly
audit visits - common on Invoice Discounting, sometimes
encountered on Full Factoring.
- Overpayment fee - if you request, and are
granted, a temporary advance over and above your facility terms
then
you will be asked for an Arrangement Fee.
- Minimum Service Charge - Invoked if you
terminate the agreement early, or simply if your turnover does not
achieve forecast (in the latter case you can and should normally
be able to negotiate this down).
Everything is negotiable, and we know by
how much, and what trade-offs can be made. Using our skills in this
area will save you a considerable sum.
Whether you find your facility through us or
not, we offer this one piece of advice that in itself will save you
money and frustration - Get your provider to show you a written list
of all fees applicable to the Agreement, and to confirm
that no other charges may be applied.
Funding Pitfalls
So you've have an agreement for a 90% facility,
yet your available funding seems to be around 65%? We hear this time
and again, and it is perhaps the biggest over-sell in the industry.
The Factor will agree to fund 90%, yet will apply restrictions to
individual customers known as concentration limits.
To understand this, we need to look from the
factor's perspective. They have advanced 90% against your outstanding
invoices, and in the event of your ceasing to trade, will want to
collect their money from your customers. The percentage not advanced
(10% in this case), is their protection against disputes and bad debts
that may be amongst the debts. Now this is fine for a well
spread sales ledger, but if one customer makes up 40% of the
outstandings, then a 10% margin would not be sufficient if this
customer were to default. For this reason it is common to impose a
criteria that funding will be restricted when any one outstandings on
a customer exceeds say 20% of the total. Similarly, a factor will not
wish to fund any invoice that is older than 90 days past due date.
Some factors may agree to flex this restriction,
subject to credit insurance being in place, which these days can be
purchased for selective customers.
Our advice here when seeking a facility, but
before signing up, is to ask the factor to profile your current Sales
Ledger, and ask them to state where any funding restrictions will be
applied.
These restrictions
vary enormously throughout the industry, and we know who are more
relaxed. If your funding is likely to be restricted, we can advise
your best course of action. This could simply be approaching the right
factor for your sales ledger profile, or including some form of
selective credit insurance, a medium-term loan, or
a combination of all options if necessary
Additional Security
Primarily, security for the factor lies in the
underlying invoices, and hence their care for funding levels as
discussed above. But this will not dissuade some from asking for
Personal Guarantees from the Directors
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