Regular Factoring Blog readers will be aware that I have a bee in my bonnet about companies within our industry that promote themselves by knocking their competitors and I have already outed Market Invoice and Simplicity for these practices and now it appears that Nucleus Commercial Finance has joined this select band.
Not only have Nucleus just come out with a promotion designed to frighten people away from their competitors but I received details of their E Book in an exceedingly patronising email from someone that I had never heard of:-
The E Book talks about the hidden fees in commercial loans but those allegedly hidden fees include take-one fees so they are obviously talking about invoice finance. Whilst I don’t deal with every factoring company and are therefore not privy to their operations, the ones that I do deal with and that includes the independent market leader are quite open about their additional fees with at least one giving all prospective new clients a schedule of possible additional charges along with the agreement before the facility has gone live.
Examples of the OTT quotes include:-
The Arrangement Fee –
A very common one-off admin fee to cover the costs associated with arranging the loan. Many companies are caught off-guard by the arrangement fee as it is often not presented upfront in the quote.
The amount varies and can be substantial: anywhere from 1% to 10% of the total quote. Payment is required at the start of the contract.
I have never come across any company that has been quoted 10% as an arrangement fee as to be honest the amount is just ridiculous. Most factoring companies charge a fairly nominal amount, typically £500 or so to cover the cost of documentation.
The take-on fee
A one-off service charge for recovering payment owed to your company from outstanding customer invoices. When work has been invoiced but payment has not been received, financial assistance in the form of invoice finance can be considered – at a price.
This take-on fee covers the loan provider’s costs associated with providing you with the amount owed to you, allowing your business to run as usual, and assuming responsibility for the unpaid invoice.
How much does it cost?
Typically 2% of the total value of invoices. The larger the invoices, existing or new, the larger the fee.
With the exception of much larger invoice facilities it is fairly common knowledge that most factoring or invoice discounting clients will pay two charges. A service fee based on the invoices factored and interest on the funds advanced. These fees will be the first thing that most potential clients will ask about and will generally be confirmed by the factoring company in a written quote prior to being included in the Agreement so to say that they are hidden is rather laughable.
Charge per invoice schedule (or charge to fund same day invoices)
What is it?
This fee is generally considered the most unwarranted of the lot. Simply put, it is the cost your company will pay to a financial institution when funds are paid on the same day the invoice is processed. This service is more often than not presented as part of the deal, without making mention of any penalty fees.
How much does it cost?
At a cost of 1% of the total invoice amount per transaction, this lack of disclosure is, in our view, dishonest business practice.
Nucleus may claim this to be the “most unwarranted of the lot” but again they aren’t presenting a true picture. Most factoring companies operate on the basis that funds will be available 24 hours after the invoices have been received in order to give them time to carry out their normal checks and due diligence etc but they will occasionally allow their client to draw funds early but this will incur a fee. Speaking as an ex operations type I am well aware that clients that want their payments prematurely cause a great deal of disruption to the daily work flow and the practice is therefore deliberately discouraged.
The final page of the E Book contained an alleged case study supposedly showing how one of their clients had been the victim of alleged hidden fees but unfortunately the Case Study doesn’t have the ring of truth about it.
One of our clients is a printing firm who, before they started working with us, had been granted a funding line of £200,000 with a discount fee of 1.5% above the base rate (0.5%).
• The money was to help them grow after winning a large new client.
• They thought their fees would total £75,000 over three years.
Their loan facility contained several hidden fees:
Arrangement fee – 5%
Survey/audit fee – £500 every 3 months
Trust account charge – 0.2% of paid invoices
Take/on fee – 2% of invoice value
They paid £10,000 as an arrangement fee and £4,000 as a take-on fee for invoices they brought on board
Every quarter they paid £500, adding up to £6,000 over the three years
They paid £2,550 for using the trust account their invoices were collected through
The true cost of the loan was £97,550 – a massive 30% increase on what they thought they would be paying!
As I have already mentioned the case study doesn’t have the ring of truth about it as firstly they were allegedly looking at the cost over three years which is highly unusual but makes for a larger figure in the case study and secondly all of the costs and fees that they are complaining about will have been outlined in the original Offer Letter as well as the Agreement that the directors signed.
I do wish that companies such as Nucleus, Simplicity and MarketInvoice would promote their themselves by outlining what they have to offer and not by publishing half truths about what their competitors are allegedly doing and if I may finish by offering some advice to Nucleus on the wording of their emails I would suggest as someone who has been in the invoice finance industry since before the sender of the email was born that you look at the wording of future communications more carefully as I doubt whether I am the only grey haired broker who doesn’t like being patronised.
EDIT – A couple of interesting facts came to light after I published this blog post thanks to my ever helpful readers and they can be found in the comments section