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.
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.
Posted under factoring, factoring charges
This post was written by Ian on April 2, 2007
