Invoice discounting Auckland and factoring are both forms of invoice finance and can be a great way for small to medium-sized companies to get a quick injection of money. However, before you go down the path of implementing any of these methods in your business, it is imperative to understand the costs and what affects them.
The good news is that the increasing popularity of invoice finance over the past several years has resulted in a huge increase of providers in the country. This has led to a decrease in the costs of this form of finance as the providers compete for a slice of the cake.
In this read, we are going to discuss a few things regarding the costs of factoring and invoice discounting with the aim of helping you make an informed decision.
The Costs of Factoring and Invoice Discounting
The arrangement of these costs usually differ from one company to the other and are usually negotiable. Since the costs can vary quite substantially, with specialists in a certain industry like Invoice Factoring NZ being the most competitive, it is imperative that you contact various providers for a quote.
Some of the costs that you are likely to see on the quote include:
- Credit Management service fee
- Discount Charge
- Extra costs for services like credit protection
- Notice period to terminate the service. Keep in mind that some invoice discounting Auckland and factoring companies have notice periods of up to a year, which may be costly for your company.
What Affects The Cost of Invoice Discounting and Factoring?
There are several different factors that will affect the price that you pay for an invoice discounting or factoring service. As a general rule of thumb, the greater the volume or higher the value of your invoices, then the lower the costs of your turnover.
Here are some of the factors that an invoice discounting Auckland or factoring facility will keep in mind:
1. The value of each invoice
Regardless of the value of an invoice, the effort needed to process as well as collect the payment will be the same. As such, the costs tend to be proportionately lower on invoices that have a higher value.
2. How often you utilize the facility
Perhaps the biggest determiner of how much you will be is the number of invoices you wish to release funds from. The more invoices that pass through the invoice finance provider, the lower the rate will be.
3. Your sector and industry
As we all know, some industries tend to riskier than others. If your business is in an industry where non-payment is pretty common, then you can expect to pay more for things like credit protection.
4. The size of your business
Factoring and invoice discounting Auckland companies usually like to work with businesses that have a bigger turnover as well as an established credit control protocol in place. That is because the company retains the role of collecting payments.
These are some of the costs that come with invoice finance and the factors considered by the facilities that offer the services. They are what you should consider before settling for any of the finance solutions.