Assessing Accounts Receivable Factoring Fees

As with any type of business service, keeping the fees as low as possible is essential to maximize the profitability of using the service. When it comes to using a factoring service, the accounts receivable factoring fees will be a critical consideration and will typically set one factor apart from the competition as being the best one for your business.

Factoring is not the same as a loan or a line of credit and it is not provided through traditional types of financial institutes. This means that it is offered through private companies, with each of these companies having their own set of accounts receivable factoring fees.

Factoring Rate

There are different fee structures in place depending on the specific factor. All factors charge a factoring fee, which is the amount they charge for their service. This is typically between one and five percent but will vary based on risk, age of the invoices and even the specific industry.
You will need to consider the different rates charged by various factoring companies. However, a low rate may sometimes mean a lot of extra fees and charges, so make sure to understand all the costs.

Additional Fees

The top factors don’t have any hidden or extra accounts receivable factoring fees. Instead, they charge the factoring fee and all other services are provided without any additional cost to your business.

Other factors may charge a variety of fees. These can include:

  • Application fees
  • Due diligence fees
  • Termination fees
  • Minimum volume penalty fees

Some factors may also require that you sell all of your accounts receivables, rather than allowing you, as the business owner, to choose which invoices you wish to factor.

Take the time to make sure you fully understand the fees the factor will charge. These fees should be clearly outlined in any agreement, allowing you to make a fair comparison between factors before using a service.