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So, some companies are coming up with some really creative ways to combat the effects
of the down economy, and one of the types of companies that is really trying to generate
some unique, creative ideas to generate more money are really the service industry organizations.
Unfortunately, when these service-oriented business start to get creative with how they
can generate more money, it translates into price hikes, hidden fees, reduced services,
and cutbacks on productivity, and basically that means the customer suffers while the
service-oriented business is, you know, lining their pocket a little bit more.
So for example, if you look at the airline industry right now, you’ll notice that as
fuel prices have started to increase, also airlines are starting to charge extra for
some common courtesy services that they didn’t use to charge for. So I’m sure you’ve
seen things such as snacks, drinks, prices for checked bags, service fee for assigning
a seat, and also tacking on a service charge...surcharge for fuel. And basically, what happened in
the airline industry is when the big industry giants started tacking on these little extra
hidden fees, it didn’t take long for the smaller guys to catch on, and then it was
pretty much an industry standard to expect these hidden fees to get tacked on when you
were shopping for airline tickets.
And then came along Southwest.
Southwest had this big promotion that they were going to have a “no fee” policy.
They were going to be different from everybody else – they weren’t going to charge extra,
and they weren’t going to nickel and dime their customers, and it was a great marketing
campaign, and it really helped boost Southwest’s flying standards.
So, I wanted to discuss a little bit about how the factoring industry is also following
in line with the airline industry. Basically, they – both industries operate worldwide,
they both offer services, and they’re both notorious for charging hidden or extra fees.
Now, like Southwest there is a handful of factoring companies – PRN Funding happens
to be one of them – that doesn’t tack on hidden or extra fees, so like Southwest,
the factoring industry also has a handful of factors that don’t charge hidden fees
or extra fees, and they’ve incorporated that into their literature. And I wanted to
talk a little bit more about those types of hidden fees for business owners to be aware
of so that you can check into your contracts and read over them ahead of time before signing
on the dotted line.
So first and foremost, you kind of have to understand the basics of a factoring fee.
First and foremost, factoring’s not a business loan – it’s an outright purchase of receivables
at a discounted rate. Factoring companies vary their rates; sometimes they charge a
flat fee across the board for a designated amount of time, whether that’s every ten
days or a flat fee per month, or something like that, and then other factoring companies
vary their fees depending on how long they own the invoice.
And basically, factoring rates can be affected by a number of things. One is the contractual
length of time you decide to stay in the factoring relationship; another thing that will help
or hinder your factoring fees are your average billing volumes, the average size of your
invoices, the number of account debtors, and how creditworthy those debtors are.
And then, you’re going to have, in addition to the straight factoring fee, which is usually
pretty up-front with factoring companies, there’s a slew of other kind of hidden or
extra charge fees that sometimes pop up. One of those, the first category, is set-up fees.
Many factoring companies offer prospects the ability to kind of be pre-approved, you know,
‘fill out the application and we can get you pre-approved!’ While little does the
factoring prospect know that there’s a fee to fill out the application – it could be
$25, it could be $500. And then, there might be an origination fee, which is tacking on
another couple hundred dollars. Some factoring companies will charge fees to [perform] their
due diligence, so basically a factoring prospect could be a thousand dollars or more out of
pocket just to apply to use a factoring company, without being approved.
The next type of category of fees that can be hidden or extra is classified as administrative
cost. Some factoring companies are going to charge their clients fees to compile and ship
documents, whether that’s postage or faxing; also long distance phone calls or making copies.
And then, let’s not forget that every factoring company is going to have specific fees for
moving money, so there could be a wire fee; there could be an ACH fee; and it’s important
to know each of those when choosing which way you want your money deposited into your
bank account.
The last category is basically revolving around a whole bunch of penalty fees, and these are
really where the hidden fees lie. Basically, a factoring company could choose to charge
an extra fee if there’s a misdirected payment, meaning if your debtor sends the payment to
you instead of to the factoring company, and you don’t send that payment directly to
the factor, they’re going to hit you with a fee. Other factoring companies will require
that you stay in a contract for a specific length of time, and if you decide to breach
that contract or move on to another funding relationship before that time period has ended,
then they’re going to charge you an extra fee.
Some factoring companies will be willing to purchase invoices and let them go out, say,
60, 90, maybe even 120 days, but there’s going to be a fee if those invoices go past
that specific amount of time. Some factoring companies require a monthly minimum amount
to be factored, and if you don’t meet that minimum, then you’re going to get charged
an extra fee. And this can sometimes be problematic for startup companies or companies that are
growing, and they might not meet that minimum. Like...some factoring companies have a maximum
monthly amount that if you go over a specific amount of money with your factoring, then
they’re going to charge you a fee for that extra processing of funds.
So basically in conclusion, the factoring industry and airline industry is similar in
that they’re both service-oriented companies; they both tend to have hidden fees and whatnot,
but basically just like when you’re shopping for an airline ticket, you want to make sure
you look at the all-inclusive costs – how much is the trip really going to cost you,
then the time that you book the ticket, to picking your seat, to bringing on luggage
– the same thing applies for choosing a factoring company. Make sure that you read
all of the terms within in the contract before agreeing to do business with the factoring
company, and that way these hidden fees aren’t going to rise up when you least expect it,
and also at a time when you can no longer renegotiate the terms.
For more information about factoring, please visit The Factoring Blog at www.thefactoringblog.com