Termination fees on factoring facilities – justified or ripoff?

I was approached by a company yesterday who had given notice of termination to their factoring company to be told that the factor wished to levy termination fees as the client hadn’t drawn down as much of their funding line as had been anticipated and a figure of £1,500 was what the factor told them would be charged.

The company is turning over £200,000 per annum and was drawing down £20,000 of funding instead of the £30,000 that the factor anticipated and was paying 2% over Libor for the priviledge.

Assuming that the factoring company make a turn of 2% on the funds that they put out that would equate to £200 loss of income on the £10,000 over a whole year so I can’t see how a charge of £1,500 can possibly be justified.

My personal feeling is that the charge is extortionate and trying to squeeze extra fees out of a company that has fulfilled it’s contractual obligations is bringing the whole factoring industry into disrepute.

I won’t name and shame quite yet as the charge hasn’t been finalised but I did suggest that the client might mention as part of his negotiations that the broker charged with finding a replacement factor is the “bloke that writes the factoring blog” as hopefully that may cause them to rethink their policy.

3 thoughts on “Termination fees on factoring facilities – justified or ripoff?”

  1. I’m with you on this one, it does seem rather extortionate. And yes, it would paint a badimage to our industry, which from what I’ve been reading on a few blogs and forums is already under more scrutiny in the current financial climate.

    Barry

  2. Seems like they’ve plucked £1,500 out of the air on this one. This does seem like a harsh request considering how much you are quoting the factoring firm has actually lost.

    Has there been any further developments on this yet?

  3. The existing factoring company wouldn’t even come Close to quoting a more realistic termination fee

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