This is a critical aspect of invoice finance contracts, especially for businesses with seasonal fluctuations. Monthly minimum service fees, based on projected turnover, can impose significant financial burdens during slower periods. Despite lower actual turnover, businesses are often locked into paying these fixed minimums, resulting in unnecessary costs.

Consider this scenario: An expected annual turnover of £500k with a 1% service fee would typically result in monthly minimums of around £400. If the actual turnover falls short, say to £300k annually, the 1% service fee would amount to £250 per month. However, due to the minimums, businesses are charged the full £400 monthly, regardless of actual turnover.

For seasonal businesses experiencing peaks in turnover for a few months and lows during others, the issue is exacerbated. High turnover months might meet or exceed the minimums, making them irrelevant, but slower months still trigger full charges despite lower income.

While many lenders employ monthly minimums to ensure a baseline revenue, there are alternatives available. Some lenders offer facilities with no monthly minimums, providing more flexibility and aligning better with the ebbs and flows of business. Unfortunately, brokers may not always disclose these options, as they often earn a percentage of the service fee, incentivizing them to prioritize higher minimums.

As an independent commercial finance broker committed to long-term client relationships, I prioritize your business's unique needs over short-term gains. By understanding your operations thoroughly, I can source the most suitable options tailored to your requirements, including those with no monthly minimums. Your financial well-being and success are my top priorities.

In an invoice finance contract, you typically encounter two primary charges:

1. Service Fee: This fee is a percentage of the total value of invoices processed through the facility. It covers the administrative costs associated with managing your invoice finance arrangement. The service fee is often calculated monthly based on the total value of invoices financed.

2. Discount Fee: Also known as the interest rate, the discount fee is the percentage you pay on the funds you utilize from the facility. This fee is charged over the current base rate (such as LIBOR or Bank of England Base Rate) and is calculated based on the amount of funds outstanding. It essentially represents the cost of borrowing the funds advanced by the lender against your invoices.

Understanding these charges is crucial for evaluating the overall cost of your invoice finance facility and ensuring transparency in your financial arrangements.

Bundled fees can provide convenience and predictability by offering a fixed cost per month for funding up to a predetermined amount. This can be advantageous for businesses seeking clarity and stability in their financial arrangements.

However, it's essential to exercise caution when considering bundled fee structures. While they may appear attractive on the surface, they may not always offer the best value compared to traditional service and discount fee arrangements. It's crucial to carefully analyze the terms and compare the total cost of the bundled fee against what you would pay under a service and discount fee model.

In some cases, businesses may find that bundled fees result in higher overall costs, particularly if their funding requirements fluctuate or if they could have negotiated better rates under a traditional fee structure. Therefore, it's essential to conduct a thorough cost-benefit analysis and seek advice to ensure you're getting the most favorable terms for your business.

It's crucial to be aware of potential retrospective fees when transferring your facility to a new lender. These fees can often catch businesses off guard, as they're deducted from their available funds without explicit notice.

Retrospective fees essentially mean that when the outstanding funds are transferred to the new lender, you may be charged service and/or discount fees on this amount by the old lender. Essentially, this results in paying for the same funds twice.

While some lenders may have this fee as standard practice, others may not. Additionally, some lenders may be open to negotiation, reducing or even eliminating this fee altogether.

Given the potential impact on your finances, it's essential to clarify the existence of retrospective fees with both your current and prospective lenders when considering a transfer. Negotiating these fees or exploring lenders who don't charge them can help minimize unnecessary costs and ensure a smooth transition to your new facility.

same-day payments, often listed as "disbursements" on monthly statements, can represent a significant, yet often overlooked, cost within an invoice finance facility. These fees can range anywhere from £5 to £40 per transaction, with an average around £30. For businesses heavily reliant on same-day payments, these costs can quickly add up.

Consider this: if you're making just two CHAPS payments per week, at an average cost of £30 each, you could be spending £240 per month, or over £2,500 per year, solely on same-day payment fees.

However, it's essential to note that not all lenders charge for same-day payments. Some lenders offer these services at no additional cost, while others may be open to negotiation, providing a certain number of free CHAPS payments each month.

Given the potential savings and impact on your bottom line, it's worth exploring options or considering alternative providers who offer more favorable terms regarding same-day payments. By reducing or eliminating these fees, you can minimize unnecessary costs and optimise the efficiency of your invoice finance facility.

bad debt protection (BDP), also known as credit insurance, is a crucial component of many invoice finance facilities, yet it often goes unnoticed or overlooked by businesses. BDP provides coverage against the risk of non-payment by debtors, offering peace of mind and financial protection to lenders and businesses alike.

However, it's essential to consider several factors when it comes to BDP:

1. Inclusion in Facility: Some lenders include BDP as part of the facility, with the cost typically ranging from 0.3% to 1.4% of the invoice value. Depending on the creditworthiness of your debtors, BDP may be necessary to determine funding limits.

2. Optionality: While some lenders make BDP a mandatory requirement, others offer it as an option. This flexibility allows businesses to choose whether they want to include BDP in their facility.

3. Third-Party Sourcing: Some lenders require businesses to source BDP from third-party providers. This approach gives businesses more control over the selection and terms of their BDP coverage.

4. Impact on Funding Limits: The availability of funding limits may be influenced by BDP coverage. Some lenders use BDP as a guideline for determining funding limits, which can affect the amount of funding available to your business.

5. Cost Consideration: The cost of BDP can vary significantly among lenders. Exploring different options and comparing the charges for BDP coverage can help businesses make informed decisions and manage the overall cost of their facility effectively.

In summary, understanding the role of BDP in your invoice finance facility and exploring the options available can have a significant impact on your funding limits and overall facility costs. Taking the time to evaluate different BDP offerings and their associated costs is crucial for optimizing the financial benefits and protection provided by your facility.

The cost of audits is a significant consideration when setting up an invoice finance facility, and it can also be an ongoing expense throughout the contract duration. Audits ensure compliance with the terms of the facility and provide assurance to the lender regarding the accuracy of financial information.

The fees associated with audits can vary widely depending on factors such as the size of the facility, the complexity of the arrangement, and the requirements of the lender. External audits conducted by third-party firms can range from £400 to £2,500 or more. Some lenders may require audits to be conducted quarterly, semi-annually, or annually, adding to the overall cost.

It's worth noting that larger facilities and those tailored to specific industries such as construction often incur audit charges. Additionally, some lenders may include requirements for periodic surveys in the contract, further increasing costs for the borrower.

However, it's essential to recognize that audit fees are negotiable. When negotiating a new contract, businesses should consider discussing audit requirements and associated costs with the lender. By exploring options for reducing or eliminating audit fees, businesses can minimise expenses and optimize the overall terms of their facility.

These fees cover the administrative costs associated with setting up the invoice finance facility. They may include legal fees, due diligence costs, and documentation fees.

Some lenders charge fees for each transaction processed through the facility, such as invoice verification, payment processing, or credit checks on customers.

Concentration limits are a critical aspect of many invoice finance facilities. These limits dictate the maximum percentage of your debtor book that can be funded for each individual debtor.

For example, a lender may set a concentration limit of 30%, meaning they will only fund up to 30% of the total value of invoices from a single debtor.

These limits serve to mitigate risk by diversifying the portfolio of debtors and reducing dependency on any single debtor. They also provide lenders with assurance that funding is spread across a range of debtors, minimizing the impact of potential defaults.

It's important for businesses to be aware of concentration limits when structuring their invoice finance facility, as exceeding these limits may result in reduced funding availability or additional fees from the lender. Understanding and adhering to concentration limits can help businesses manage risk effectively and maintain a healthy cash flow.

A debenture is a common form of security taken by lenders for invoice finance facilities. It grants the lender a charge over the assets of the business, providing security for the funds advanced. Additionally, lenders may request additional forms of security, such as personal guarantees, indemnities, or charges on property.

1. Personal Guarantees: These are commitments by individuals, typically directors or shareholders, to personally repay the debts of the business in the event of default. Personal guarantees provide an additional layer of security for lenders, as they can pursue the personal assets of the guarantors in case of non-payment by the business.

2. Indemnities: Indemnities are agreements whereby one party agrees to compensate another for specified losses or damages. In the context of invoice finance, businesses may provide indemnities to lenders to cover potential losses arising from factors such as fraud or misrepresentation.

3. Charges on Property: Lenders may also seek charges on property owned by the business or its directors as security for the funds advanced. These charges provide lenders with recourse to the property in the event of default, allowing them to recover their investment by selling the property.

Overall, these forms of security provide lenders with reassurance and protection against the risks associated with providing invoice finance facilities. It's essential for businesses to understand the implications of providing security and to carefully consider the terms and conditions before agreeing to them.

the contract length and notice period for invoice finance facilities can vary greatly among lenders. At Fiskal, we leverage our comprehensive understanding of the market to tailor solutions that align with your specific needs. Our expertise allows us to navigate the diverse landscape of contract terms, ensuring you secure the most suitable arrangement.

Lenders may offer a spectrum of contract lengths, ranging from no fixed term to contracts spanning 12 or 24 months. Likewise, notice periods can vary, typically falling within the range of 3 to 6 months. Our role is to guide you through these options, considering factors such as your business's financial stability, growth trajectory, and short-term objectives.

By partnering with Fiskal, you gain access to tailored advice and personalised solutions designed to optimise your invoice finance experience. We prioritise your satisfaction and financial well-being, ensuring you have the flexibility and support needed to thrive in today's dynamic business environment.

When it comes to funding applications for payments or purchase orders, lenders may have differing requirements regarding verification of completed work before advancing funds. Some lenders may mandate sign-off from your debtors as proof of completion, ensuring transparency and reducing risk.

However, there are also lenders who offer the flexibility of self-certification, allowing businesses to verify completion of work themselves. This can be advantageous, particularly if your debtors are difficult to reach or if you prefer to maintain control over the verification process.

By opting for self-certification, businesses can expedite the funding process, streamline operations, and maintain autonomy over their financial transactions. This flexibility can be especially valuable in fast-paced industries or when dealing with clients who have varying levels of responsiveness.

At Fiskal, we understand the importance of flexibility and efficiency in invoice finance arrangements. We can help you explore options that best suit your business needs, whether it involves traditional verification methods or innovative self-certification approaches.

This is the maximum amount of funding the lender is willing to provide to the business. The facility limit may be determined based on factors such as the business's turnover, the creditworthiness of its customers, and the value of its invoices.