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Inside Waddle

Invoice Finance Rates: Traditional Lenders Profit From Your Confusion

Avoid the bamboozlement of fancy complex finance contracts

Team WaddleTeam Waddle

Image credit: KiloKilo

You’ve chosen invoice finance because it is fast, short-term, and cheaper than alternatives like unsecured business loans.

SEE ALSO: 21 Hidden Invoice Factoring Costs Your Business Needs to Know

Now that you’re certain invoice finance is right for you, searching for the best rate is the next challenge. You come across some great rates and you get a great feeling about some low rates like 1% per month or just 2% per invoice.

So you pick the financier with the lowest quoted rate, get to the offer, and that’s when it hits you: you get that feeling you’ve felt before when something comes with those extras that the sales person didn’t mention.

Fees get mentioned, some of which are flat fees and some of which are percentages. There is a minimum amount of financing you have to do, even if you don’t need the cash.

By this time you’ve invested a phone call, face-to-face meeting, gathered all your documentation and maybe even talked it through with your accountant. At the end you walked away with the financing you needed however, you don’t know the answer to a simple question: how much am I really paying for that financing?

Why the extras are the confusion

Many traditional financiers want to keep talking about the low headline rate (advertised or talked about) that lured you in, and then when you are invested in the process you suddenly see a lot of numbers that you don’t remember hearing about in your first conversation, but are quickly justified by the financier.

The fees and charges that financier charge are real and are likely justified for operating and managing invoice financing facilities, especially for larger organisations that have large overheads.

Below are some real, full terms from one invoice financiers offer letter that one of our clients left to come to Waddle. Take a look and get familiar with this type of structure and understand the true cost of receiving an offer such as this:

Facility Limit $100,000
Type of Financing Invoice Finance Facility: $100,000
Advance Rate: 80%
Fee Structure Administration Fee: 1.5% per invoice (charged on the face value of the invoice)
Discount Fee: 0.045% per day (charged on the face value of the invoice)
Collateral/ Security Monitoring and Operational Fees $440.00
Minimum Administration Fee $18,000 per annum
Term 12 months
Recourse Period 90 days
Application fee $1,500.00
Legal fees $1,850.00

SEE ALSO: Invoice Finance Is A Tool The Big Boys Use, Now You Can Too

Instead of a straightforward interest rate or simple fee the costs keep piling up. If you happen to have any low periods of don’t require the financing for a month you will still pay for the funding due to the “Minimum Administration fee” which works kind of like a mobile phone contract. If you want to leave early you need to pay out the balance, hence the lock-in nature of these contracts.

Invoice Financing has moved on

Not all traditional invoice financiers take this contract plus fees approach. Careful research can help you find financiers who will put emphasis on transparency and simple fee structures that seek to simplify this popular financing product and make it easier to understand the true cost to your bottom line.

Business owners need a simple rate, one that they can understand quickly and easily without any catches when it comes time to signing the contract.

 



“You won’t regret your decision to get this set up.”
– Blake Hammon *Certified Review
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Waddle regularly shares client growth stories, thoughts on Fintech, lending, company culture, product strategy and design.