Invoice finance is quoted as two small percentages, which is why it looks cheap. Put them together and annualise them against the money you actually draw.
There is a service fee, charged as a percentage of turnover for running the facility, and a discount charge on the funds advanced, which behaves like interest. Quoted separately they look modest. Combined, and annualised against the money you actually draw rather than the invoice face value, they are frequently more than a comparable loan.
Swoop’s own guidance puts factor rates at 0.5% to 5% of invoice value, and factors typically advance 75% to 95%. The spread inside those ranges is enormous, which is the whole argument for comparing rather than accepting the first facility offered.
What is the advance rate, and which invoices actually qualify — are overseas or concentrated debtors excluded? Is it recourse or non-recourse, so who carries an invoice that never gets paid? What is the minimum term, the notice period, and the minimum monthly fee if you use it less than expected? Those clauses decide the real cost far more often than the headline percentage does.
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