- Service Charge - This is levied on turnover including VAT. Notice how many of the Factoring companies web sites and literature do not make this clear.
- Minimum Charges - 1% of a £200/£300,000 turnover does not sound too bad but beware, most Factoring companies have a minimum charge of at least £4,800. Fortunately we know the factors who specialise in the SME market and their charges start at around £150 per month.
- Advance Levels - Do not believe what the glossy brochures tell you, advance levels up to 90% are the exception, not the rule. Factoring companies conduct regular audits, during which they will look at the levels of contras', credit notes/returns, invoices over 90 days old and customers exceeding their credit limits. Once these are taken into account the true level of advance is more typically around the 70/75% mark. You need to be realistic about this, however, some factors do not apply credit limits at all, potentially releasing 10-20% higher funding than other factors and we can point you in the right direction.
- Minimal Annual Fee (MAF) - A relatively new innovation in the factoring industry, the use of MAF's has increased rapidly in recent years. Typically, a minimum of one year is stipulated but we have seen agreement's spanning two and three years. An initial one-year period is not unacceptable with three months notice thereafter, but make sure the break fee is pro-rata after the initial period. Better still, let us help you find a Factoring company that will accept three or six month's notice from day one.
- Concentrations Levels - Most Factoring companies like to see a wide spread of customers with no one customer representing more than 30% of turnover. If this happens they will disallow the excess with, potentially, disastrous consequences for your cash flow.
This is not much help to new start-ups with few customers, or growing young companies looking to take on all the business they can. Fortunately there are a number of factors who will happily accept concentration levels of 100% and we can put you in touch with them.
- High Export Content - As with concentration levels, many Factoring companies are not comfortable with an export level of more than 20-25%. Others will not fund exports at all. Thankfully, there are a number of market specialists who are geared up to accept export levels of 70-80% and up to 100% where appropriate. Again, we will introduce them to you.
- Miscellaneous Charges - These include quarterly audit charges, electronic transfer fees, bank charges and re-factoring fees. You need to check all of these out carefully before signing any Factoring agreement.