What are the cost components of a factoring arrangement?

Every time an invoice is sold to your factor you will see an 85-90% return, usually within 24 hours as a cash advance. Any remaining balance, minus fees and charges, will be released upon payment of the invoice. And understanding these fees is essential when entering into a factoring agreement.  Different factors set up their fee structures differently , but usually you will need to pay a start-up fee (often around 1% of the gross value of your debtor book), an administration charge or credit management fee (taken as a percentage of the invoices being funded and usually subject to a minimum monthly or quarterly amount. Calculated on turnover, this ranges from 0.75% to 2.5% for factoring and under 0.5% for discounting), discount charges (calculated daily and comprised of the base interest rate plus a percentage commission on how much is being borrowed), extra credit protection charges (if the factor is taking on the risk of bad debt on your behalf) and any termination fees or penalties that may apply should you wish to end the agreement.