Factoring with No Minimum Fee
Many factoring companies place a minimum fee in their pricing structure. We can source factoring agreements without minimum fees and we are happy to discuss how this works.
Let’s have a look at why they do this and what can be done to ensure that minimum fees do not have a detrimental impact on your business.
Why do factoring companies have minimum fees?
One of the major variables when pricing a factoring facility is turnover. Lenders calculate the workload and equate this to a cost. They obviously add a profit element to this and come up with a cost that they need to recover. For ease of maths let’s assume that they want to recover ?10,000. If the business has a gross turnover of ?1m then the service fee needs to be 1% (?1m X 1% = ?10,000)
If the business advises that it’s turnover will be ?10m then using the same calculation the service fee would only be 0.1%.
So what happens if they project ?10m but only turnover ?1m? The factoring company would only achieve a return of ?1,000 and would be running at a loss. As such they will implement a minimum fee.
How does this impact on your business?
If you have a steady and predictable turnover then there should be no impact on your business. The minimum fee, if structured properly, should not kick in.
However, minimum fees can be detrimental if you have a low turnover, a seasonal turnover or an unpredictable turnover.
If you have a low turnover then it is important to find a lender that has a specialist product for small businesses. There are some really cost effective solutions for small businesses where minimum fees will not impact on the fees.
Seasonal businesses should request that minimum fees are charged annually rather than monthly. This means that during the quiet months no fees will be charged and hopefully during peak periods enough fees will be recovered to avoid any minimum fees being charged. With a monthly minimum fee the business could pay well in excess of the monthly minimum fees in busy months but still get charged a monthly minimum fee in quiet months.
Are Minimum Fees a Problem? - The Solution
We understand how minimum fees can impact on profits if not set up properly so we can advise you on this. Importantly we also have factoring and invoice discounting lenders who do not charge minimum fees.
Smart Factoring Quotes are well versed in dealing with businesses like yours and we would welcome the opportunity to work with you.
If you are a business looking to set up an invoice finance facility without minimum fees contact us today on 0845 863 0738.
