In the times when the entrepreneurs count every zloty, when the costs are reduced and increased effort not to fall out of the market is necessary, factoring may be an effective tool of liquidity improvement. Like every service, it costs – yet surprisingly less that it is commonly thought. The costs of obtaining of the working means through factoring may be even cheaper than a bank loan. However, it is necessary to read the offers carefully and apart from the price of the service itself to put attention also to other fees within the signed agreement.
The basis of the costs of this service is interest on the granted advance, charged during the whole time of its use. It is charged from the date of its payment to the time of settlement of the invoice covered by factoring. 90% of the invoice amount is the maximum advance offered by the Factors. The main part of the interest is constituted by WIBOR rate, to which the margin of the Factor is added. Commissions of the Factors in the banking or non-banking sector may have different structure and for example consist of several elements. The base margin is usually determined on the level from 0.2% to 3% per month.
Let us analyse it on an example. In case of an invoice for the amount of PLN 100,000.00 and with current WIBOR rate as well as under the assumption that the invoice is paid within 30 days, interest will amount to PLN 388.08. A margin must be added thereto. In case of a Factor charging the commission in the amount of 2%, the company will pay PLN 2,000.00.
In case of banking Factors, also other costs may be expected, such as preparatory fee, legal service fee, debtor analysis fee or unused limit fee. Also additional interest may occur, e.g. statutory interest for exceedance of the payment term by our debtor or an additional commission in case of takeover of risk within full factoring (0.2% – 0.5% of the value of the transaction). Hidden fees are rather rare but it is worth checking whether we are not going to pay also for the basic services: access to Internet service, transfers, amendments in the agreement or report preparation.
The offers of non-banking Factors are characterised by greater flexibility in the access to services, payment of means and selection of invoices. Even though the fees themselves may be a bit higher, their structure is much more transparent. It consists of the base commission and of the additional commission charged after the invoice becomes overdue. If the company decides on non-recourse factoring, a debt collection commission will be charged.
It is worth emphasising that the non-banking sector does not disqualify also the enterprises with not too good financial results or overdue receivables. If the enterprise operates in the industry, in which settlements with payment term deferred to 90 or 120 days are common, factoring is a tailor-made solution.
Published on: 24 October 2016