In factoring, the fees charged by the factor (the third party that buys a firm’s invoices/ accounts receivable) are limited to charges related to debt collection, bookkeeping, and interest on financing provided. However, in specific cases, factoring charges may include charges related to other functions such as collection that involves legal proceedings. In such cases, the seller may request the factor to exhaust all options of collection even if it would take it to certain court actions.
Refactoring charges are usually only charged if there remain unpaid customer invoices, that have gone over an agreed approval period. If an invoice remains unpaid by a customer for a certain number of days (the approval period’), the factor will not be responsible to fund it. This means that the firm incurs additional refactoring charges and the invoice will be ‘recoursed’ back to the firm that has to pay back any amounts previously advanced against the invoice.
Refactoring charges are expressed as a percentage and set off against the invoice value, including applicable taxes.
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