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Glenn Blackman of Cashflow Acceleration Limited comments on the results of a recent survey looking into what SMEs expect to pay for invoice finance.
“As part of our recent research activity, we have spoken to 100 potential invoice finance prospects in order to understand their expectations about the cost of invoice finance. We asked them what percentage of their turnover they expected to pay for various types of invoice finance such as factoring and invoice discounting.
“On average, the businesses expected to pay 3.93% for factoring and 1.97% for invoice discounting, so they expected the cost of factoring to be almost double the cost of invoice discounting. It is clear that, in many cases, SMEs are also overestimating the cost of invoice finance generally. SMEs estimates appear to support their expectations that factoring will be expensive.
“We also compared the pricing estimates of businesses that preferred bank owned factors with those that would opt for an independent provider. We found that those that would prefer an independent factor estimated the likely cost of invoice finance to be 57% higher than those that said they would prefer a bank owned provider. This clearly indicates an expectation that invoice finance from an independent factor will be substantially more expensive than that from a bank, which again is not always the case.
“These results highlight once again that potential customers’ price expectations are often out of line with reality and we need to continue to work to educate businesses regarding the actual costs of these services.”
Glenn Blackman
Glenn Blackman MBA MCIM writes regarding invoice finance and related matters at: www.glennblackman.co.uk. Glenn is also the Managing Director of Cashflow Acceleration Limited, a specialist invoice finance brokerage.
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February 25th, 2011 at 8:46 am
This is a really interesting piece of research and shows that independent invoice finance companies like us at http://www.Hitachi Capital.co.uk/factoring have a lot of work to do so SME’s understand that you don’t need to pay more for a better service.
Also the factoring, with the added benefit of collections service can actually save many SME’s money. Its upto everyone in the industry to build in the value of factoring so its not seen as last resort finance and is increasingly used by companies that want and are growing.
February 13th, 2012 at 9:51 pm
Agree – this is interesting, and we also have a lot to do to explain the range of services out there. For the SMEs that need it, traditional full sales ledger factoring or invoice discounting is absolutely appropriate. But for the SMEs that want access Pay As You Go working capital from companies like ours http://www.platformblack.com, then there is another way: auctioning your invoices online to a range of buyers, from banks and invoice finance providers, to family offices and high net worths, who compete to give you the best deal, and lower costs.