What Is A Collect Out Fee?
A collect out fee is a fee that can be charged to an invoice finance customer if the business goes into a formal insolvency. It may be charged if you are using invoice factoring or discounting and you enter into a:
- Bankruptcy
- Company Voluntary Arrangement
- Compulsory Liquidation
- Creditors’ Voluntary Liquidation
- Administration
It is a contractual fee levied by the invoice financier to cover the cost of collecting in the sales ledger once the business can no longer do so itself.
What it costs and why it exists
When a business fails, the lender is left holding a ledger it has already advanced against and has to chase those invoices itself, often against customers who now have every reason to dispute them. The collect out fee covers that work.
It is usually charged either as a percentage of the ledger being collected, or as a substantial fixed sum, and it is one of the larger contingent charges in a facility agreement. It normally sits alongside a termination fee, so both can apply at once.
The practical point is that it is in the contract from day one and is easy to miss, because it only ever applies in circumstances nobody is contemplating when they sign. It is worth reading and understanding before you sign rather than after, particularly the definition of what triggers it, since some agreements are drafted widely enough to capture a solvent restructuring.
Related terms
See also discount fee and refactoring fee.
Read more about the costs of factoring and the other fees a facility can carry, or about invoice factoring and invoice discounting generally.
Bolton Business Finance is a whole of market commercial finance broker. Call 0161 546 9128.
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