A new report has revealed that UK banks are charging SMEs, in need of short-term finance, £425m a year in 'hidden' extra costs.
Invoice financing platform, Market Invoice, has found that 26,000 businesses that have invoice finance contracts through banks face up to 35 hidden costs on top of interest and service fees.
UK businesses are being charged £758m per year by banks for invoice finance, which is £425m more than what alternative finance providers are charging. The research has been based on revenues from banks’ invoice financing arms and showed high street lenders charge 6.4p on average for every £1 of invoice finance.
Because invoice financing is unregulated there is no standard way of presenting prices but roughly 50,000 businesses borrow £20bn every three months in the UK invoice finance market.
Anil Stocker, CEO of MarketInvoice, said:
“As a result, the market is plagued by bad practice.”
The extra charges range from fees for handling paperwork to extra costs for making same-day payments and could also include monthly minimums, add-on or administration fees, application fees, proposal fees, due diligence fees, credit check fees, notification fees, schedule processing fees, BACS fees or invoice processing fees.
Louise Beaumont, head of public affairs at GLI Finance said invoice financing was “legendary for its opaque fee structure”.
“Providers of invoice financing advertise the headline cost but not the full cost to the business in question,” she said.
David Postings, CEO of Bibby Financial Services, said:
"There is no doubt that the banks could do more to improve the transparency of their fees and treat small businesses fairly. But it is wrong to say that UK SMEs are faced with a simple dichotomy between the big banks on the one hand and emerging peer-to-peer lenders on the other. UK SMEs have a number of financing options available to them, including thriving independent funders."