Debtor finance is an umbrella phrase for two types of financing program known as invoice discounting and factoring. Both solutions allow your business to finance invoices that take long to settle and this improves your cash flow. In this read, we are going to help you comprehend the fees and rates associated with these two options. Keep in mind that those debtor finance Auckland are often tailored to the individual circumstances of the client and so, what is presented here may differ to your actual proposal.
Invoice Discounting Vs Factoring
Both of these solutions help you deal with cash flow issues. They are an ideal option if you need money, but offer your clients net 30-day payment terms.
Most factoring solutions provide credit and collection services in addition to the financing platform. On the contrary, invoice discounting provides just financing. Factoring is generally offered to small firms that ideally need assistance in improving their credit and collections. On the other hand, invoice discounted is usually offered to bigger and well-established businesses that do not require credit help.
The Proposal Structure
Most debtor finance Auckland have most of the fees discussed below. Bear in mind that your proposal may utilize varying terminology and that actual costs are individualized.
1. Service Fee
This is a fee that’s charged on the total value of each and every invoice that’s financed. In most cases, this is the primary financing fee that your firm must pay.
The rate can range anywhere from 0.3% to 2.5% per invoice. Some of the things that determine the size of the fee include your industry, size of the line, special considerations and of course, the invoices’ credit quality in which debtor finance in Auckland can help you.
2. Due Diligence Fee
This is a fee that covers the cost of conducting credit checks, filings and work required to put a financing line in place. The due diligence fee is paid once you accept the financing proposal.
The fee can range from a few hundred dollars to several thousands, depending on the size of the line as well as the situation’s complexity. As such, bigger companies and more sophisticated situations have bigger due diligence costs.
3. Discount Fee
This is a type of debt finance fee that’s charged on the actual advanced funds. These are often a percentage of the total value of the invoice, for example, 80%. Keep in mind that not all proposals include a discount fee, but most of them tend to.
How Do the Debtor finance Auckland discount and service fee work?
There’s no standard method of charging for these services. Some firms charge just a service fee, while others charge both. However, it is important to note that proposals that charge both fees does not necessarily mean they are more expensive than those that do not.
Bigger firms prefer paying the majority of the financing costs via a discount fee instead of a service fee. That’s because discount fees tend to resemble a line of credit fees. On the other hand, smaller businesses prefer a service fee structure as it is easier and more predictable.