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The cost of factoring and invoice discounting in Sri Lanka

The costs of factoring are usually reasonable and this is why many suppliers shop around before choosing the best factoring partner in Sri Lanka. However, cost is not the only consideration as quality of service is important too.
Equally important to check the notice period to end the service when signing any agreement. Remember the fact that most factoring companies require three months' notice. However, some companies have notice periods of up to a year which could prove expensive for your business. If you are not happy with the notice period, feel free to negotiate.

Factoring is a complex, long-term agreement that could have a major effect on the management and development of your business. It is therefore advisable to consult your solicitor on the legal and financial implications of factoring.
Standard costs arise in two ways – interest charges also known as discount fees and service fees. There may be additional costs for additional requested services.

Interest or Discount charges
This fee works in exactly the same way as bank interest works. Typical charges range from 10 per cent. The interest charges is calculated on a daily basis and usually applied monthly to the factoring account. These rates are roughly equivalent to bank overdraft rates and can even be more advantageous.

Credit management fees
There will be a fee for credit management and administration. The amount will depend on your turnover, the volume of your invoices and the number of customers you have in your business. Typical fees range from 0.75 per cent of turnover to 2.5 per cent of turnover.

For invoice discounting, fees typically range from 1 per cent of turnover to 10 per cent of turnover. These fees are less because the level of service provided is significantly lower than with factoring.

Credit protection charges
These will be levied in non-recourse factoring arrangements, where the factor is liable for any bad debts. The amount will largely depend on the factor's assessment of the level of risk. Typical charges range from 1 per cent of turnover to 10 per cent of turnover.

All fees and Charges in nutshell
In effect, when considering any factoring arrangement, consider that the factor will apply someor all of the following  fees and charges.
 Arrangement fees
 Discounting charge
 Refactoring fee
 Customer credit limits
 Incoming payment fee
 On-line bank payments
 Annual review fee
 Legal costs of registering a charge

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