Costs of bank factoring
A sizable portion of the factoring market in Poland is that provided by bank factors. Their method of calculating the cost of the service consists of three elements: WIBOR, margin and commission.
WIBOR, or Warsaw Interbank Offered Rate, is the interest rate on loans in the interbank market. What interest rate a bank will lend money at will largely determine the cost of the loan to the end customer. This also applies to factoring. The WIBOR parameter is set for specific periods, such as one day, one month, three months or six months. Bank factors usually include WIBOR 1m or 3m in calculating factoring costs.
Margin (or interest) is the term most commonly used in commerce. Represents the difference between the purchase price and the selling price. Although loans or factoring are not commodities, banks also need to make money on them, which is why they apply a margin. The basic margin is most often set at between 0.2% and 3% per month. How much percentage will be in a given case is a matter for each bank individually.
The operating commission, in turn, is charged on the amount of the invoice. The second factor that affects the commission is the due date of the invoice. Many bank factories (but non-bank factories as well) offer separate thresholds for invoices with 30-day, 60-day or 90-day payment terms. Similarly: the faster the repayment, the lower the cost for the factor.
With an invoice of 100,000.00 thousand. PLN, the current WIBOR interest rate and the assumption that the invoice will be paid within 30 days, the interest will amount to PLN 388.08. To this must be added a commission. In the case of a factor charging a commission of 2%, the company will pay 2,000.00 thousand. PLN. The total cost of factoring for the example given is PLN 2388.08.
How much does non-bank factoring cost?
From the point of view of the end customer, a slightly friendlier form is taken by the costs of factoring offered by non-bank factors. Here we are usually dealing with a single commission, usually called a factoring commission. It is given on a monthly basis. This method of billing is more transparent, as the factoring company can accurately count the basic cost of factoring that it will face during the term of the contract at the initial stage.
Non-bank factories also offer the inclusion of an essential cost in the form of a monthly commission expressed not as a % but as an amount – a flat rate, also known as a subscription rate.
The base cost of non-bank factoring consists of the factoring fee alone.
The factoring costs described above are just a base – in order to calculate exactly what the actual cost of factoring is, you need to add additional fees to the basic factoring costs – these occur regardless of whether you use bank or non-bank factors.
All the fees discussed can be found in the fee schedules of the individual factories.
Also known as the initial fee or factoring limit fee. As part of this fee, the factor prepares an assessment of the financial situation of the factor and recipients, the documents needed to conclude the agreement, a valuation and an analysis of collateral.
The preparation fee may be charged once at the conclusion of the contract or at the conclusion of the contract and at each renewal.
Charge for unused limit
An extremely important part of the factoring agreement is to determine the appropriate factoring limit for your company. Factors provide limits in different amount ranges, but a higher limit is not always beneficial to the factor – as the factor may charge a fee for the unused limit.
Fee for exceeding the limit in concentration
The concentration limit is the maximum percentage of reported (financed) invoices issued to a given payee (payer) in relation to the total contract balance financed by the factor. Exceeding the concentration limit can have two consequences: withholding of financing or charging an additional fee for exceeding the limit.
Fee for assumption of risk
Some factories charge an additional fee for assuming the risk of insolvency of your company’s counterparty – an additional safeguard in case of repayment problems on the part of your customers. Such a fee generally ranges from 0.2% to 0.5% of the value of the financed invoice and occurs in full factoring.
Factoring – other fees
In addition to the above-mentioned fees, some of the factories also charge additional small fees: for example, for changing the billing account number, for another annex to the contract, for raising the limit or for early termination. If the payee delays repayment, the factor may also demand a late fee.
All of the fees described above should be duly described in the factoring agreement or the T&Cs attached to it, so that factoring clients have no problem understanding what types of fees may apply to them both when entering into the agreement and during its term.
Before you accept the terms of the contract, make sure you carefully read the fee schedule attached to the document.
Many entrepreneurs interested in factoring value the transparency of fees above all else. It is for this reason that non-bank factor offers are slightly more popular – they are characterized by a little more flexibility in accessing additional services.
In addition, a transparent approach to factoring fees results in customers making more informed decisions about factoring agreements, which in turn has a positive impact on subsequent cooperation between factor and factor.
Factoring available to all
It is worth noting that the non-bank sector does not disqualify companies that have been on the market for a short time or have temporary financial problems or overdue receivables.
If the factoring company operates in an industry where deferred payment settlements of up to 90 or even 120 days are common, online factoring may prove to be a tool that will put an end to the company’s recurring liquidity problems. This, and the fact that the use of factoring does not increase the company’s debt, is particularly important for companies with short tenure and those with other liabilities.