Is it true that the fees factoring companies charge are higher than the fees banks charge businesses for loans?
Yes, they are somewhat higher than some bank loan interest fees, but the higher rates can be justified by the fact that you can receive needed cash immediately, often within 24 hours or less, the length of the contract may be much shorter than a bank loan, and you are not incurring more debt (as with a bank loan). The higher cost may also be offset by your ability to take advantage of early payment discounts (from your suppliers) that were not available to you when your cash was encumbered by large accounts receivables and by the possibility that you can offer better credit terms or discounts to your own customers. A factor can also eliminate your need to hire someone just to handle your accounts receivable; they can function like an “outsourced” accounts receivables department.
