BCashflow Positive / Blog
The question most asked but rarely answered by many of our competitors. The reason? Their pricing models and funding costs are constantly shifting, so they really don’t know what the real cost of the facility will be for a customer.
At BCashflow Positive, it’s actually a straight forward question with a straight forward answer. To get to the bottom of why many of our competitors have trouble answering the question, let’s look at this in more detail.
Recently, we’ve seen advertising in the media from a home loan lender which satirically has its competitor running around, spruiking fees and this is pretty much on the mark in the invoice factoring space as well.
Invoice factoring has traditionally been a product offered by the non-banking sector, however in the last 20 years the banks have gotten on board as they see the potential money to be made in fees. Due to the way they manage the facility, banks refer to the product as invoice discounting. Your business still needs to qualify under the bank’s underwriting standards, which assesses your business’ eligibility based on the quality of the business to meet their lending ratios, not the quality of the customers buying your products. The banks charge an interest rate on the money out the door and a buying fee for the invoices initially purchased. Often, to qualify for the bank’s factoring facility, you will need to do all your banking with the same institution, which introduces a range of other fees attached to these accounts.
As banks are usually deemed to be the leanest when it comes to pricing as they have the cash reserves to do so, it might sound like a good deal for a business. At the end of the day though, you still need to qualify under their standards. As their facilities often focus on the larger business sector, many small to medium sized businesses will not qualify.
Banks often have a lower interest rate for the funds in use (perhaps 5% p.a. calculated daily) but they also have a buying fee which is often capped around $80,000 p.a. because it is hard to justify this fee constantly growing as a percentage of turnover when there is also the interest component, activity fees, line fees, unused limit fees and other account fees to consider.
A big issue has therefore arisen from the model used by the banks, as many non-bank lenders in the factoring space have copied this model of multiple fees to benefit their bottom line. Many of these lenders have a ‘cost of funds’ – a borrowing cost they incur and need to cover.
The majority of these lenders essentially borrow money and then lend it and as such need to cover the costs of doing so. With a simple fee structure that is more difficult to achieve. What has evolved is that many of our competitors have adopted multiple fees within their factoring facilities that reflect what the banks are doing.
At BCashflow Positive, we have many businesses who are currently factoring elsewhere and exploring alternatives, tell us when they ask the cost to fund an invoice, they can’t get a simple answer. We decided to look at some of the fees our competitors are adding in:
• Management fee / invoice buying fee: a fee charged on the purchase of the invoices being factored. The majority of lenders now require all invoices raised be processed through the facility and as such this fee captures each and every one and will vary based on the deal size or level of turnover. With a minimum ranging from $1,800 through to $2,500 subject to deal size.
• Interest rate: the interest rate will be applied to the funds in use or drawdown. As we already noted, the majority of lenders have a cost of funds and this interest rate will always be higher than that offered by the banks. We have seen in recent times this being as high as 10%-15%.
• Unused Limit Fees: to offset the savvy client who manages the funds in use to minimise interest, a number of lenders now have unused limit fees which is a fee that is charged for the funding gap between the money being used and the facility limit set.
• Audit fees: an audit is a field review that the factoring company may conduct at a desired frequency ranging from monthly, quarterly or six monthly. The audit cost could be as much as $1,000 per auditor per visit.
• Additional fees: other fees we have seen from our competitors include credit note fees, older debt fees (overdue accounts), overdrawn account fees, establishment fees, application fees, limit increase fees, legal fees, annual review fees, credit reference fees, insurance fees, misbanking fees and more.
With so many added fees, it’s no wonder many of our competitors can’t give a straight answer for the cost of the facility.
At BCashflow Positive, we believe in total transparency and provide a simple fee structure. We charge 1.80% flat for 30 days and then 0.06% per day thereafter for the time the invoice is outstanding between you (the client) and us.
So, for example, $100,000 for 30 days of funding is $1,800 as a discount of the value of the invoice(s). If the window between you and us is greater than 30 days, it is a further $60 per day based on this example. This makes it easy for our clients to calculate the cost per invoice, because we do not lend money at a rate of interest. We purchase invoices at a discount and charge as a percentage discount from the face value of each invoice. There is no third-party cost of funds that needs to be covered.
Many business owners and financial professionals treat factoring discount rates as interest rates on a loan, leading them to the incorrect conclusion that factoring is too expensive.
Let’s use our above example: If a business sells $100,000 worth of invoices to BCashflow Positive and the fee is $1,800 on invoices that are paid in 30 days, the tendency is to take the 1.8% fee, multiply it by 12 months and think that that’s an annual return of 21.60%. This is incorrect! Our charge was 1.8% on that sales transaction alone, no different than if you were to sell your own product or service to a client at a 2.50% – 5.0% discount.
With three decades of experience, BCashflow Positive has become a leading factoring company in Australia. We want to help small and medium businesses, even start-ups, to thrive and manage their cash flow needs. There are no quarterly audits or intrusive shadow software. We give you the freedom to run your business.
If you’re an SME looking for a flexible cash flow solution, call 1300 937 292 and speak to one of our factoring experts to fast-track your application.
Note: BCashflow Positive Facilities start at a minimum of $100,000 per month in factored sales
"We used BCashflow Positive when our bankers didn't want to know us, as we operate in an industry that was going to be affected by the introduction of the carbon tax.Traditional lenders were unable to deal with the uncertainty and risks.
BCashflow Positive understood the risk and assisted us with our cash flow, which was great"
"Getting instant funds from our invoices is crucial to our business success. It means we can pay wages on time and grow our business. The staff are also great to deal with."Owner, Recruitment, NSW
"We engaged BCashflow Positive to get on top of our ATO obligations. Constant cash flow allows us to meet our operating expenses and grow our business."Accountant, Earthmoving, QLD
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