Factoring charges – the hidden costs

The factoring market has long been very competitive but when prospective factoring clients compare quotes from a number of different providers they often just look at the headline rates without bothering to delve any further into the small print.

We came across a company recently who banked with RBS and had naturally approached RBS Invoice Finance for a factoring quote. According to the prospect the quote for factoring the debts of this £300,000 pa turnover company was “a little on the high side” but it wasn’t until they emailed the quote over that I realised quite how high it was as it included a setup charge of £1,500 which is three or four times the size that most of the independents would charge but the real sting in the tail was the 1% renewal fee which I must admit was a new one on me.

Asking around it seems that RBS Invoice Finance wasn’t the only factoring company to charge renewal fees as HBOS also used to do it.

I was discussing a quote for an invoice discounting facility with a provider today and I asked him whether he had quoted a renewal fee and his reply was that his company didn’t charge them whereupon I suggested that he should have put renewal fee – none in his quote as we know that we are tendering against a couple of bank owned factoring companies who may well have renewal fees.

Whilst discussing renewal fees the factor told me that he had seen a quote from RBS Invoice Finance that included a termination fee. This wasn’t a fee in lieu of notice for an early termination but would have been payable on top of the balance of any minimum fees whenever the client decided that he no longer needed his facility.

It’s getting to be a bit of a minefield out there.

Invoice discounting enquiries at record high levels

We have had more enquiries for factoring and invoice discounting in the first week of February than we did in all of February 2008 and whilst that should be good news for a broker I find it a little disconcerting that having read through the website which deals with the fact that not all factoring and discounting companies are created equal and some offer a truly appalling service with operating quirks that could cripple some companies cash flow plus a raft of hidden charges that could increase the headline costs considerably – people still telephone and ask “what’s the cheapest rate for an invoice discounting facility”.

There are always people around who are just after the cheapest deal but it seems to be on the increase. On Thursday we took three such enquiries in quick succession. The first was a well established recruitment company turning over £1.7m with a very healthy balance sheet who had received a quote from RBS Invoice Finance including a minimum annual charge of £12,000 and who were so pleased that we found a funder willing to do it for half of that that when arranging a meeting for next week they asked whether they would take the agreemenst with them as they were so keen to proceed. I think that has far more to do with RBS quoting ridiculously high rates in order to pretend to the world that they were actively looking for new business whereas in reality they were ensuring that no-one would take up their offers.

The other two were a recruitment company turning over £1m who was obviously contacting every factoring company in the telephone book and will probably end up with whoever quotes the cheapest headline rates and a distributor also turning over £1m who’s quote from Lloyds TSB I managed to better but who wanted to leave it until next week when he was having a meeting with his accountant which is probably a euphemism for scouring the market place.

Luckily Thursday wasn’t all about rates as we also had an enquiry from a loss making company turning over £6m who were about to sign an invoice discounting agreement with one of the independents but didn’t want to sign a personal guarantee as they thought that having been established for 30 years with 800 customers and being limited to only a 50% advance that a PG was a bit too belt and braces.

Luckily at least one factoring company on our panel agreed with them and came up with an in principle offer with a higher funding level and no guarantees.

Just to round off a busy day the scaffolding hire company turning over £500,000 with applications for payment was fairly easy to place.

It’s just a shame that more people don’t take more notice of the operating differences between different invoice financiers as they could be so keen to get the lowest rate that they end up paying a higher cost – after all £700 for an audit visit mounts up if they visit several times a year

RBS announce £3bn extra funding for SMEs

It was announced today that RBS would be making available an extra £3b in the SME sector and the press release even mentioned that this would partly be used in their invoice funding division.

Judging by recent activity it would seem that rather than tell the world that their factoring and invoice discounting divisions are not interested in new business they are continuing to quote but at such uncompetitive rates that no-one in their right minds would take up their offer.

Just this morning we had an enquiry from a well established firm of recruitment consultants turning over £1.7m and with a healthy balance sheet who were looking at invoice finance not because they desperately needed the money but to be prepared for the inevitable hiccups in their cash flow. Their outstanding debts were £300,000 and they were looking to raise a maximum of £100,000 as a stand by facility.

We approached one of the independent factoring companies known for both the excellence of their service as well as competitive pricing and they quoted a rate of 0.45% with a minimum of £6,000 for a confidential invoice discounting facility whilst the company approached RBS Invoice Finance directly as they banked with RBS who quoted them exactly double.

RBS Invoice Finance factoring charges yet again

I have now had a look at a factoring quote provided by RBS Invoice Finance to a prospective client and quite honestly I find their proposed charges outrageous.

The company have a turnover of £300,000 with five customers all equally spread and they have no history of payment problems. RBS have quoted for a recourse facility so there is no credit insurance involved and what’s more they want the client to do their own credit control. The minimum factoring commission of £6,000 pa is at least one third more than available in the independent sector and as if the outrageous setup fee of £1,500 wasn’t bad enough there is also a renewal fee payable on the anniversary of the facility of 1%

I have been in the factoring industry a long time and this is the first time that I have heard of a renewal fee but the real problem is that probably 95% of RBS Invoice Finance clients come directly from the bank and it never occurs to them that there might be alternatives that would offer a better deal so they just sign on the dotted line.

If this case is representative of RBS rates I would suggest that anyone considering a factoring facility with them should look around for an alternative quotation as they are very, very uncompetitive.

In this particular instance we will be saving the company about two thirds of the setup fee plus another third of the ongoing fees plus all of the renewal fee as none of the factoring companies that we deal with charge so outrageously.


Factoring Solutions

RBS Invoice Finance charges to small businesses

I have just had a telephone call from a small company who were about to sign up with RBS Invoice Finance until she read our website and thought that she should talk to someone from the independent sector first.

The company are struggling a little due to the recession and turnover is down slightly to £300,000 per annum with outstanding debts of £50,000. RBS have made an indicative offer of terms but it wasn’t the factoring commission rate that astounded me but the setup fee of £1,500.

I don’t think that I have ever come across a setup up fee so high for such a small company as it equates to 0.5% of turnover or 3% of the likely funding line. I don’t know how they can justify this sort of charge when the independent sector would be charging about one third of that, especially when the customer’s ledger consists of five customers.

Royal Bank of Scotland can make as many public announcements as they like about their commitment to helping the small business sector but even Shylock would have been pleased to get away with charges like that.