Learn How to Lessen Costs in Invoice Discounting and Invoice Factoring

In today’s economic climate, so many people are on the lookout for cost savings and for businesses, invoice finance facilities including invoice factoring and invoice discounting is usually a good way to obtain cost savings.

The following are 6 ways in which to lessen the costs of invoice factoring or invoice discounting:

1. Consider changing products – Based upon if you are currently using invoice discounting or invoice factoring you might be able to make a cost saving by switching products. Should you be currently using a factoring facility, and you’ve got existing resource within your business that could deal with credit control, it could be that you can save money on your invoice finance costs by switching to an invoice discounting facility where you do not get a credit control service as part of the facility. This means that the facility can be affordable. Alternatively, if you are currently using invoice discounting and you have existing credit control staff in your business, by switching to invoice factoring you’re going to receive a credit control service included in the facility and this may allow you to reduce your staffing cost by not employing credit control staff.

2. Switch between selective and whole turnover invoice finance – Most commonly it is on a “whole turnover” basis that a number of invoice factoring and invoice discounting facilities operate. Therefore all of your invoices are automatically captured with the invoice finance arrangement and the charges are likely to be determined as a percentage of the need for your invoicing. If you do not have a consistent requirement for cash in your business, for example if you are subject to seasonal trading peaks and it is these that you require funding for, you might be better off considering a selective facility where you only factor or discount certain invoices, hence reducing the expense of the facility overall.

3. See the Bad Debt Protection – If you already have bad debt protection as part of an invoice factoring or invoice discounting facility you should assess the effectiveness of that cover. The adequacy of one’s credit limits that are being granted through your invoice company are important and must be thought about. Also take into account any other provisions on the arrangement such as first loss clauses which mean that you are not likely to be covered for the first part of any particular loss. If you find that your bad debt protection is not providing you with adequate cover, you may wish to reduce your cost on your invoice factoring or invoice discounting costs by moving to a recourse facility (where you do receive bad debt protection).

4. Drive down the “other costs” involving invoice factoring or invoice discounting – There are numerous of other charges that may be applied through the funder. An example of this is by taking payments by CHAPS rather than BACS. A BACS transfer is often provided without charge however, a BACS transfer will take longer to clear, and credit funds to your account, than a CHAPS transfer. If you are able to plan ahead your money flow requirements you may be in a position to switch from using to each other in order to reduce the cost associated with your facility. Its also wise to review the additional fees detailed on the statement given by your invoice finance company (normally each month). This will assist recognize the type of other charge you’re incurring and seek to drive them down. For example, if you are being charged re-factoring fees, according of overdue debts, it could be cost effective to spend a while chasing these invoices in yourself, in order to avoid paying these penalty fees.

5. Exclusions should be examined – Whether or not things are operated on a whole turnover basis, majority of the financial institutions can exclude certain transactions from your invoice discounting or invoice factoring facility. For example, some types of transactions may be of no interest to the factor so they may exclude them which may also been known as not notifying those particular transactions. For those who have specific, identifiable parts of your business’ invoicing that you could manage without receiving funding against e.g. particular customers or types of transactions, you might consider asking the invoice finance company to let you make those non-notifiable, or excluded, within the terms of the facility. This will likely prevent you from the need to pay a fee according of those particular types of invoices.

6. Do negotiations while exploring – Actually, you will see quite a few facilities for invoice discounting and invoice factoring. It is actually a competitive market and a new provider will often be able to quote to you better rates than your existing facility. Same thing goes with your existing provider up against the market, they are ready to negotiate your existing rates so that they can retain you.

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