How much does factoring cost?

How much does factoring cost? The short answer

There are two pricing models. Each one works differently.

The higher your revenue, the lower the price. But the percentage alone doesn't tell you much. It's often the extra fees that make the difference.

How factoring fees work

The factoring fee

The factoring fee pays for the factoring company's work. It handles the paperwork for your invoices. If you also opt for collections, it follows up on your invoices and sends reminders. With traditional factoring, you pay the fee on every invoice you submit, even the ones you don't take an advance on.

Interest on the advance

With traditional factoring, you usually get 60% to 90% of the invoice amount as an advance. You pay interest on that amount until your customer pays. The rate is usually Euribor plus a margin. Euribor is the rate at which banks lend to each other. You only pay interest on what you actually use. Don't use the advance? Then you don't pay any interest.

Additional fees

This is where quotes differ the most. Watch out for these fees:

• Annual minimum fee. For example, €3,000 or €7,500 a year. If your revenue doesn't reach it, you still pay the minimum.
• Setup fee. A one-time charge, sometimes up to a few thousand euros.
• Audit fee. An annual check of your invoicing.
• Per-customer fee. A fixed amount per customer, per year.
• Peak balance fee. Some factoring companies charge a small percentage each quarter on the highest amount you used.
• Credit insurance. With traditional factoring, it isn't always included. See also: Factoring and credit insurance: can you combine them?

Not every factoring company charges all of these. Some quotes have no setup fee and no management fee. That's why it pays to compare.

Worked example: what does it cost to factor a €10,000 invoice?

This example is hypothetical. Real prices depend on your business and your customers. You send a €10,000 invoice. Your customer pays after 60 days.

On paper, traditional factoring is cheaper here. But look at the annual minimum too. Say the minimum is €3,000 a year and your revenue is €400,000.

• 0.4% of €400,000 is €1,600.
• You still pay the €3,000 minimum.
• So your effective fee is 0.75%, not 0.4%.

Add a setup or audit fee, and the gap shrinks fast. Sometimes it even works out the other way around.

What determines your factoring rate?

A factoring company mainly looks at:

• Your revenue. More revenue means a lower price.
• Your customers. The more reliable they are, the lower the risk.
• The number of invoices. Lots of small invoices take more work than a few large ones.
• Customer concentration. Does most of your revenue come from one or two customers? Then the risk is higher.
• Payment times. How long your customers take to pay, on average.
• Late payers. If a customer pays later than agreed, some factoring companies charge a daily fee.

Why is one quote cheaper than another?

Never compare the factoring fee alone. Look at what you pay in total over a year. Ask yourself:

• Is there an annual minimum? And will your revenue reach it?
• Are there setup, audit, or management fees?
• What percentage of your invoice do you get as an advance?
• Is credit insurance included, or do you pay for it separately?
• Do you also pay on invoices you don't take an advance on?
• What happens if a customer pays late?

A low rate with high fixed fees can end up costing more than a higher percentage with no extras.

See also: How to compare factoring companies: 5 tips

How much does Nextfactor's advice cost?

We spell it out in our terms of engagement, so you know where you stand from the start. Because we work with twelve partners, we line up their quotes side by side for you. You see right away which option costs your business the least.