10 ways to reduce cost
- Prepare cashflow forecasts and be aware of cash demands, particularly where there is little or no scope for delay, eg VAT. Planning may help avoid the need for overpayment requests. Overpayments are expensive
- Don’t breach the agreement. Make sure all your staff who have responsibility for invoicing and payments are aware of procedures demanded by invoice financier.
- Factoring is a working capital facility with the funds generated used for day to day business management. Don’t use funds raised for fixed asset purchase.
- Make sure the service you pay for & receive is right for your business. If you are undertaking the collection work why pay the Factoring company as well
- Do you have bad debt protection built in? Is it really necessary?
- Don’t max out the facility just because its there. Interest is payable on all funds drawn so if it cant be put to good use don’t draw it down
- Plan ahead & draw funds down cheaper using BACS transfers instead of same day, costly, transfers.
- Beware recourse fees. When a debt due by a customer reaches a certain age and remains unpaid it can be recoursed back to you with a percentage of the invoice value charged to you as well.
- Check for unallocated payments. Make sure your ledger is kept up to date, if you have a customer saying an invoice has been paid but the Factoring company cant find it work to make sure it is credited to the right account.
- Negotiate. Factoring companies don’t want to lose you as a client so will compromise on rates.
There are more, of course, and its always worth talking to an independent broker.