Additional Freight Factoring Costs to Consider
Depending on the factoring company chosen to work with, additional fees may be charged above and beyond the expected. Take particular notice of this issue as it one of the main causes of soured relationships between a trucking company and their new factoring company.
No two factoring companies are the same, nor are their pricing structures. Where some are upfront in disclosing all fees, others are less forthright. Unfortunately, there are some factoring companies that reveal hidden fees once a client has committed to an agreement and begin the funding process. These are the factoring companies to look out for and avoid like the plague.
Look for:a factoring company that has an all-encompassing fee and discloses any and all additional costs that may affect your account.
Following are common additional charges:
- Application and Startup Fees
- Servicing Fee
- Invoice Processing Fees
- ACH and/or Bank Wire Fees
- Monthly Minimum Fees
- Early Termination Fee
- Are Extra Fees Bad?
Figure 2-2: Common Additional Charges
Application and Startup Fees
It takes time and effort for a factoring company to set up a new client. Due diligence must be conducted and legal documents must be brought into place. To offset this initial investment, many factoring companies pass the cost onto their new client.
Some factors charge fees to cover the cost of evaluating an application and/or setting up the financial arrangement. Many of these factors will hide this cost until the first invoice is factored.
Look for:a freight factoring company that does not charge an application or set-up fee.
Servicing fees are usually charged on a monthly basis, but could be charged at other intervals as well. These are usually general fees used to cover the costs associated with keeping an account current, providing reports, etc. This fee is sometimes called an Administration or Maintenance Fee.
Invoice Processing Fees
This fee is used to cover the costs incurred while processing invoices. Such costs could be as a result of running credit checks or maintaining records.
ACH and/or Bank Wire Fees
Factors may charge a small fee to transfer funds between banks. There are a few different ways to transfer funds, including Automated Clearing House (ACH) and bank wire. A bank wire is often faster but more expensive. Therefore, it is more likely to come across a bank wire fee than an ACH fee, but some factors charge for both.
Some factors may require that a client factors a certain amount if invoices per month. If the client dosen't meet that minimum, they will charge a monthly minimum fee to make up th.
Early Termination Fee
If the factoring company requires a contract, it typically ranges from 6-18 months. If for any reason the client wants to cancel the arrangement, they will almost always have to pay a fee to get out of the contract.
Are Extra Fees Bad?
As long as the factor is upfront about extra fees, they are not necessarily a bad thing. Regardless of the way they are charged, the client will have to pay for services such as account maintenance, invoice processing, and money transfers; instead of charging additional fees, some factors may simply roll all these costs into the factoring fee.
Whether or not an arrangement with extra fees is best for the client's business must be evaluated on a case-by-case basis.
Copyright 2019, Accutrac Capital Solutions Inc.