Common Factoring Fees
When factoring, you’ll come across many types of fees. Some factors charge lower initial factoring rates but have many hidden fees. Some may even increase their rates over time. Not every factoring company charges these fees but it’s important for you to take them into consideration when picking a factoring company and reading through their contract before signing.
· Application Fee: Some factors require a fee just to fill out an application. If you are not approved, you won't get a refund. These fees can cost a few hundred dollars and are almost always non-refundable.
· Sign-Up Fee: Upon approval, some factors require you to pay an initial fee to start factoring with them. These fees can also cost a few hundred dollars and won’t apply towards a factoring fee on a load. If you choose to not continue factoring with the company, you will not be refunded this fee.
· Termination Fee: If you have a contract with a length of terms and decide to stop factoring before the contract expires, you may get charged a lot of money to break that contract. Be careful when deciding the length of your contract. Some companies also require a 30-day written notice before the end of your contract that you will not be continuing factoring with them. Be sure to send in that notice so you don't get locked in to an automatically renewed contract!
Hidden Fees to Watch Out for
Some factoring companies will work these hidden fees into their contracts without informing you. While the company might have only 1 or 2 hidden fees, these fees can be extremely expensive one-time expenses or compound over time if they're monthly fees.
· ACH Transfer: There are companies that charge a fee to electronically transfer or deposit funds into your bank account. These fees can range from $10 to $25, which can really add up to a lot of money over time! Some companies will charge you an amount per invoice they're paying you for, or they will require you to have a batch of multiple invoices on which you pay a discounted fee to have an ACH transfer initiated. If you're factoring 5 or more invoices per month, you will easily pay over $50 a month for transfers.
· Minimum Volume: Some factoring companies require carriers to factor a minimum number of loads per month. If that minimum volume of invoices is not met, they either charge an extra fee to the carrier or increase the factoring rate percentage. If you do not meet this minimum volume multiple months in a row, your factoring rate could easily hike a few percentages.
· Credit Checks: Before picking up a load from a broker, you want to know if that broker is reliable and will pay your factoring company. Some companies don't work with certain brokers. In some cases, you might have to pay for every broker credit check you request from the factor. Read more here.
· Reserves: Factoring companies may charge reserve rates as an insurance in case a broker fails to pay them. This means a percentage of your invoice amount is kept “on hold” for 30 or more days, or until a broker pays the factor. Read more here.
· Same-day Funding: You may have to pay extra to get your funds deposited the same day in your account.
When picking a factoring company, always read the fine print and make sure you're not being charged more than you're expecting. The small dollar amounts can add up to a lot per month, so be sure to carefully calculate those costs. Transparency is key to making sure factoring is working for you and your business.