Fees: Not A Dirty Word

All businesses are compensated in some way for their products, intellectual property, services or capital. In the finance world, many companies take on credit risk by allowing others to use their capital and are compensated in the form of fees. Unfortunately, this can be one of the most confusing parts of this industry and this business. One the most common questions we get as a finance company is “how do your fees work?”.

In keeping with our core value of Simple Is Beautiful, we have consistently sought out ways to clarify and pare down our fee structure. For too long, companies in our space would nickel and dime their clients to death with confusing fees that were buried deep within their agreements. This allowed the finance company to “advertise” a lower rate, while all along charging their clients “yield enhancements” to increase their fees. Our business can be a risky one, so with that comes a higher cost of capital than most other types of finance.  Still, we thought there had to be a better way to do it.

In a typical finance company in our space there are any number of fees that can be charged:

  • Discount Fee

  • Prime+ Interest Rate

  • Wire/ACH Fee

  • Default Fee

  • Same Day Funding Fee

  • Origination Fee

  • Minimum Fee

  • Document Fee

  • Lockbox Fee

  • Monthly Service Fee

  • Credit Check Fee

  • Termination Fee

And more! It would be wonderful to be able to eliminate almost all of these but we see so many different types of companies, with so many different capital needs that the structure of two financing agreements is rarely exactly the same. Because of this, we do still need to have a variety of different fees to account for different events within a client relationship. That being said we have done our best to eliminate as many of these as possible.

We reduced our normal fees to our discount fee, wire fee and due diligence deposit (in some cases). Depending on the situation, we may apply an origination fee, but this in unique scenarios and is made very clear upfront. This makes the true cost of capital easier to understand, so that our clients can build this into their business model and grow.  Before a business can grow, they need to understand their costs first.

Where do I find the fees?

We also recently took this one step further.  While the basic fees can be easily understood, there are other uncommon fees that are in factoring agreements.  These include things like default fees, misdirected payment fees, etc. These are things that we don’t like charging because if we are charging it, this means there has been a challenge with the business.  That said, challenges happen. Typically, the way these uncommon fees are calculated is hidden is deep within the factoring agreement. We decided that we should be transparent with these fees as well, even though we only charge them on rare occasions.  To do this, we now list any and every fee that we could ever apply at the very top of our factoring agreement. This gives our client a chance to truly understand what is involved in all aspects of the agreement they are about to sign.

Fees are not very exciting, but they allow us to operate a business that provides capital to so many growing businesses. Our goal is to keep the interests of our clients and their businesses in the forefront and one way we have done that is by simplifying the structure of our fees, as well as being as transparent as possible about their cost of capital. In doing this we hope we are building relationships built on openness and trust that will allow both of our companies to grow and succeed!

Liz WhittenComment