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Factoring and invoice discounting firms charge fees for credit management
Page 27
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and administration. The amount will depend on turnover, the volume of invoices and the number of customers. Often an arrangement fee will also be charged. The operator will also be expected to cover the finance company's legal fees.
Credit protection charges will be levied if it is non-recourse factoring, where the factor is liable for any bad debts. The amount will largely depend on the perceived level of risk. Typical charges range from 0.5%-2% of turnover.
The competitiveness of the pricing package also depends on other factors, such as the volume of invoices, how long customers take to pay and bad debt history.
Even though factoring and invoice discounting products have become more popular in recent years, it is clear that the potential for confusion is still high. For this reason, facilities should be negotiated carefully at the outset. Directors should resist long-term personal warranties.