Factoring Interest Rates

Factoring Interest Rates, the small print

In a bid to grab more market share it is becoming increasingly common to see eye catching headlines in promotional material including such statements as

“only 1% over Base Rate”


“an interest rate probably lower than your overdraft”

but headlines like that can be misleading as we hope to illustrate:-

Assuming a turnover of £750,000 and an average debt turn of 50 days

The funding at 80% is likely to be in the region of £98,500 and the interest charge at the headline grabbing 1.0% over Base rate is likely to be about £1,500 pa

The same amount of funding at an interest charge of 3% over base Rate is likely to end up as an interest charge of just over £3,400 pa

As you can see in the above example the actual difference in cost between the headline grabbing 1.0% over Base and the more normal 3.5% over Base is £1,900pa which equates to 0.26% of turnover.

This shows the importance of costing the whole package because if the more marketing savvy factoring company had quoted a factoring commission which was 0.2% of turnover higher than their competitors they would effectively be more expensive overall.

The other point to consider is the effectiveness of the factor’s sales ledger management and credit control. The above example assumes that the customers are averaging 50 days to pay their accounts but if through the factor’s inefficiency this was allowed to slip by a mere fortnight, the headline grabber’s interest charge would end up costing the same as the more efficient factor charging the normal rate.

For an informal chat on invoice finance please contact Factoring Solutions on 01827 707680 without any obligation whatsoever. We will be happy to discuss the various options open to you and you will be safe in the knowledge that we will only ever introduce our clients to one of the few factoring companies that offer high service levels as well as competitive rates.

As we receive an introductory fee from whichever factoring company we place you with, we will never charge you any fees at all so please contact Factoring Solutions on 01827 707680 now.

For a free no-obligation friendly chat, give us a call on 01827 707680 or