The cost of your debtor finance facility will be determined by three factors.
1. Your Business.
Lenders like to invest in strong businesses with potential for growth. If that’s you, they will compete aggressively for your signature. However, there are lenders who will fund struggling businesses and often that support will put a company back on its feet, but fees reflect a perception of risk. You will get the best price if you are profitable and have a strong asset base.
2. Your Customers.
It is important that your customers are of high quality, have a good credit history and pay their bills on time. Lenders are very comfortable you have lots of customers who pay their bills. It means that if one customer defaults, the financier will recover its funds from others.
3. Type of Debtor Finance.
Confidential arrangements (factoring) will cost you more because the financier generally acts as your credit department by managing and collecting payments. There is also a perception that because your customers don’t know that you are financing invoices there is greater risk the financier will suffer losses.
Disclosed arrangements (invoice discounting) tend to cost less because the risk to the financier is lower and you remain in control of the invoicing and collection processes.
Your costs will also be lower if a financier holds security over invoices issued to all your customers (whole of turnover) rather than just those issued to a single debtor. In fact, not many financiers will agree to single debtor arrangements.
So, what does debtor finance cost in numbers? See below:
Whole of Turnover
Whole of turnover means the finance company will hold all invoices you issue as security for the funds it advances.
Application Fee: $2,000 – $6,000
Account Service Fee: 0.25% – 0.5% of annual turnover
Interest on funds advanced: Reserve Bank rate + lender margin of between 2% – 4% calculated daily and applied monthly
Single Invoice Finance (selective invoice factoring)
Single invoice Finance allows you to obtain funds on an invoice by invoice basis.
Application Fee: Nil – $1,500
Fee: 3% – 5% of the invoice amount over 30 days. The fee may increase if the payment period goes beyond 30 days.
Merchant Account Finance
This facility allows a business to use future EFTPOS and credit card sales as security.
Fee: Negotiated based on amount advanced and period to full repayment.
Repayments: Typically 3% of EFTPOS and credit card payments until the financier recovers its funds and fee.
So, in short, there is no off the rack fee for debtor or invoice finance. If you are looking for a facility or want a better deal the best thing to do is to call us. We have relationships with a range of finance companies and can quickly obtain indicative quotes which will allow you to make informed choices.