What Is Your Factoring Company Really Charging You and Why?

What is your factoring company really charging your business or your client’s business and why?

Many, if not all, US and some Canadian factoring companies (generally US subsidiaries)continue to charge you even after your client has paid the factoring company. Many charge between 3-5 extra days interest. They claim they have to wait 3-5 days for their bank to clear the check. Let’s investigate this further.

In many cases today the money is wired into the factoring companies bank account so why the extra charges?

Most, if not all, factoring companies have lines of credit from their banks. Do you believe the Bibby’s of the factoring world are allowing their bank to charge them an extra 3-5 interest for the check to clear? And if they are, then isn’t it time for them to move banks? 

Is your factoring company worried your client’s payment will bounce? Factoring companies only buy invoices from your creditworthy clients. Is it not the factoring company that is making the decision on which ones of your clients are creditworthy or not. So why is your factoring company protecting themselves from bounce checks? Why are they charging your business an extra 10-16% on a 30-day invoice? Why are they charging your business an extra 20-32% on a 15-day invoice? All on the off chance that your billion dollar client will bounce a check? Most factoring companies have recourse back to the client, so again why the 3-5 day hold on payments.

Factoring companies that concentrate in the trucking industry are selling you on a 2.99-3.99 for 90 days with a 95% advance. Sounds great at 1% per month, but is it really 1% per month? Not when the average payment on a trucking invoice is 36 days.
Others charge a percentage of the line they set up with your business. There really is no maximum line set up for your business. A factoring company is not lending your money, they’re advancing you money owed to your company from very large creditworthy companies that the factoring company, and only the factoring company, has approved.
Do you really believe that a factoring company is going to turn down a verified 1 million dollar invoice from Google, Exxon or Bank of America just because your line is $500,000.00? If they do, then it can only be that they do not have the money to finance it. Which is a bigger problem for you and another reason to look for another factoring company.

Some factoring companies also charge for: buying your invoice on top of the factoring rate, reviewing your account each quarter or year, raising your limits, winding down your factoring relationship. Why? Is it because it is the only way to be able to offer you the low factoring rate they advertise to get your account?

The only fees you should ever pay to a factoring company is their factoring fee (a percentage of the invoice for a specific period of time), a wiring fee for the funds into your account (but only if you use a different bank then the factoring company) and a legal set up fee taken from the first advance not upfront. You should not be charged for anything else. If you are, you are paying too much for your factoring.

Michael Yasny of Money Consultants has over 25 years in the factoring business and will gladly review your present factoring relationship for free. The review presents absolutely no risk (you still maintain your present factoring relationship during the process), meanwhile you could potentially save your company thousands of dollars per month. Don’t switch your present provider, unless of course it is determined that you are being charged too much and there’s a better alternative.

For your free review of your present factoring relationship, contact Michael Yasny at 416-565-9455 or michael@moneyconsultants.ca brokers protected.