Five Invoice Discounting Pitfalls to Avoid
When searching for the right invoice discounting provider for your business, it’s easy to just look at the interest rates and overlook the rest of the features of the deal. Some providers feature the best invoice discounting rates only to mask hidden fees and other disadvantageous conditions.
Here are some pitfalls to avoid:
1 – Minimum charge
Certain invoice discounters have a minimum charge cap of around £10,000. It is advisable to pick a discounter who uses a percentage to calculate the minimum charges, e.g. 0.4%, rather than a fixed amount.
2 – Service charge levied on turnover, including value-added tax
Many companies who boast of offering the best invoice discounting rates can have high service charges. This is particularly prevalent with online invoice discounting brokers.
3 – Minimal annual fee
This generally stipulates a minimum of one year, or sometimes two. It’s preferable to avoid this fee. If that is not possible ensure it has only an initial one-year period with a three months’ notice. Six months’ notice is better and a good broker will be able to find you a company that provides it.
4 – Various other charges
Most often these are represented by re-invoicing charges, bank charges, and electronic transfer fees. The invoice discounter should mention these before you sign any agreement.
5 – Excessive break fees
These are sometimes based on lending limits that are higher than the actual money you need to borrow, usually up to 100%. Try to avoid these fees where possible by choosing an affordable invoice discounter. Looking for best invoice discounting rates is not enough when searching for an invoice discounting company – hidden fees and other charges also need to be considered.