How to Reduce Factoring Costs

We Compare the Invoice Finance Market

  • Release Funds to Improve Cash Flow
  • Quick Finance Solution
  • No Need to Chase Payments
  • Greater Flexibility for Your Business
Get a Quote
Real business finance

How to reduce factoring costs

Updated: 30th June 2021

Factoring costs can vary considerably between lenders. Different structures may be used to arrive at fees and additional costs, and lenders can have varying tolerance levels in relation to the risk of non-payment by your own customers.

Factoring costs will include service or management fees, and a ‘discount fee’ which works in a similar way to the interest applied to standard bank loans. So if you think the cost of your factoring facility seems high, how can you reduce it, and get the most out of this flexible form of finance?

Regularly review your factoring arrangement

By carrying out a full market review of your facility, you see whether the factoring fees charged by your current lender are high. You’ll also have more idea whether the arrangement is structured in the best way, and maximises your cash flow.

Reduce your overall limit if it’s not needed

Sometimes a lender might offer a limit that’s higher than you currently need, but this is costing you in terms of unnecessary fees. If this is the case, you could approach your lender to see if they can offer lower fees for a reduced limit.

Focus on the total cost of the facility

Your lender may have a very attractive ‘headline’ fee but it doesn’t necessarily mean that your overall costs will be low. When you factor in additional costs and disbursements, you may find that it’s an expensive facility that isn’t bringing the financial rewards it could.

Request a review of costs

It’s a good idea to request a review of your fees from time to time, but particularly if your turnover has increased significantly since the arrangement began - a higher turnover should mean a reduction in fees.

  • Low-cost Finance for UK Businesses
  • Funding 1,000+ Limited Companies Since 1989
  • Broad Range of Financial Products
Visit UK Business Finance
Refused a CBILs or Bounce Back Loan?
Alternative Finance Options Available

Use the BACS system

If you’re using same-day CHAPS transfers, it’s an expensive way to operate the facility. The BACS system takes a little longer, but it’s free, and with the reduction in cost it may be a better way to have the money transferred.

Consider invoice discounting

Your factoring arrangement may include the lender taking over credit control for your business, with a resulting increase in fees for the service. An alternative to factoring is invoice discounting which leaves credit control in your own hands, and could considerably lower your service fees.

Managing your factoring account and bank account

When your factor releases money, it’s paid into your factoring account and then withdrawn to your bank account as needed. By keeping your bank account as close to a zero balance as possible, you’re effectively reducing your borrowing and therefore the fees.

Predict your cash needs

Accurate cash flow forecasting helps you anticipate any shortfalls in the coming months, and better manage your borrowing levels. You can forecast on a daily basis if necessary – a good idea if you’re experiencing a worrying financial decline.

Understand how lenders arrive at their costs

By understanding this type of lending, how lenders perceive their risks, and the way in which costs are arrived at, you can better identify any anomalies or inconsistencies in this and any future factoring agreements you enter into.

Our experts at Real Business Rescue can provide the professional insight you need when it comes to the costs of factoring and invoice discounting. We’ll undertake a review of your current costs, and identify potential areas for negotiation with your lender. We also have contacts with alternative lenders around the country. Call one of the team for a free same-day consultation - we operate from Over 100 UK Offices.

Director Support - Business suffering from Cash-Flow Problems?
If your company is financially distressed, we also offer the below services:
Business debt recovery

  • Recover Unpaid Invoices of £5k+
  • Expert Credit Control Services
  • Stop Late Payers & Bad Debts
Visit Site
Time to pay experts

  • Get Breathing Space with HMRC
  • Support with Business Tax Arrears
  • 35 Years HMRC Negotiation
Visit Site
UK Business Finance

  • Rejected for a CBILS Loan?
  • Get Emergency Business Funding
  • Supporting 1000+ UK Companies
Visit Site
Who we help
  • Company Directors
  • Finance Directors
  • Sole Traders
  • Accountants
  • Small Businesses
  • Large Businesses
  • Partnerships

This site uses cookies to monitor site performance and provide a more responsive and personalised experience. You must agree to our use of certain cookies. For more information on how we use and manage cookies please read our PRIVACY POLICY