factoring interest rates

Factoring company interest rates

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Factoring companies have historically charged interest at a percentage over Base Rate ( say 2.5% to 3%) but have built in to the Agreement a minimum Base Rate of, say 4% so their current lending rate of 7% per annum is effectively 5.5% over Base

In the light of the recent reduction of Base Rate to levels previously unimagined many factoring companies have switched their interest charging structure to a percentage over Libor so that they can maintain their margin on lending but we were talking to one of the independent factoring companies that we deal with who informed us that they do not have any minimum built into their agreement and their current lending rate is between 4% and 4.5% per annum.

The irony of this is that their factoring interest rate is now considerably cheaper than that charged by the bank that funds them

Cut in base rate probably of no help to factoring clients

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Today’s 1% cut in base rate to 2% will probably have negligible effect on SME factoring and invoice discounting clients as firstly many of the providers have already moved over to LIBOR as a charging rate and secondly many of those who have remained on base rate will have minimum base rates included in their agreements and these could well be 4% or 5% so any factoring client on 3% over base could still be paying 8% pa

Time to dust off those factoring agreements and check the wording