Factoring

What are the charges in factoring?

1.Service fee

Service fee which is also known as service charge,factoring charge or factoring fee.

It is charged for the following services provided by the factor:

a. Collection and receivable management

b. Credit protection

Service fee is charged at a percentage of the invoice value. For example if the service fee is 1% and the invoice value is $1,000, the service fee is $100.

Service fee ranges from 0.125% and  1.5% . It is normally determined at the outset of the factoring arrangement. The service fee is determined based on the following factors:

The annual sales volume

The number of customers

The number of invoices and credit notes

The averarge invoice value

The risk of the customers

Service fee will be higher for non recourse factoring (credit protection) and export factoring arrangement.

 

2. Discount charge

Discount charge is also know as interest charge. It is charged for the advance taken from the factor. No discount charges will be levied if there is no advance taken.

Normally discount charge is charged at prime plus basis. For example prime plus 2%. Increasingly factors are charging different rate such as cost of funds, SOR etc.

Discount charge is computed like overdraft on day to day basis on the advances outstanding.

 

3. Handling fee

For export factoring there is usually a handling fee fixed at per invoice value and credit note. For example $20 per invoice/credit note