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• 03 Aug

  Selective Invoice Finance Price

  This is an example of a selective invoice finance price that we found for a customer recently.

  Small Borrowing Requirement

  With this particular client, they already had a recourse factoring facility, but they wanted to take over handling the collections (credit control) themselves. Some companies prefer to handle the credit control themselves, others choose to outsource the function.

  They also only had a very small borrowing requirement, so even a cheap quote for full book invoice discounting was going to work out as an expensive option, despite being a significant cost saving on their existing recourse factoring price. The issue is that for a whole turnover quote the price will reflect the ability to discount all your invoices throughout the year, not an ideal solution for a company with sporadic borrowing requirements.

  A Solution

  So one solution was to look for a selective invoice finance quote (also called spot invoice finance), to see what it would cost to be able to get funding against small batches of invoices, as and when they need it. This option will also leave them with no obligation to use the service regularly or ever again, if they choose.

  Selective Invoice Finance Price

  Based on their turnover of over a million per annum, and a reasonable spread of debtors, the selective invoice finance price was 1.2% of the amount borrowed, for each month, until it is repaid. This charge is prorated on a daily basis. The only other charges are a small arrangement fee to setup the facility, and a CHAPS transfer fee, if they want that kind of same day payment.

  Example Price

  So if we work out an example of the price, it would be as follows.

  If they drew down £10,000 for a period of say 20 days, the discount charge would be £78.90*.

  How Discount Charge Is Calculated

  This is how discount charge is calculated:

  • 1.2% discount charge per month x 12 months = 14.4% per annum.
  • On £10,000 borrowed that would be £1,440 discount charge for the entire year.
  • Daily discount charge is therefore: 14.4% divided by 365 days = c. £3.95 per day (on £10,000).
  • So 20 days discount charge on £10,000 would be 20 times that figure i.e. c. £78.90*.

  Comparing Prices

  If they were to use the funding throughout the year, when comparing prices of whole turnover with selective, the later would work out a very costly option. However, because their funding requirements are occasional, and very modest, the freedom and flexibility of being able to pick invoices, to finance without any obligation, is a cheap method of raising the short term money that they need. There are no minimum fees (monthly, quarterly or annually) to worry about, as these are often a feature of full book invoice finance prices.

  It is an ideally flexible model for a company that has occasional peak cash flow requirements, rather than an ongoing need for continuous funding.

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  *Note: Fees may be subject to VAT and exact methods of calculation may vary between providers.

   

  By Glenn Blackman