What is a Refactoring Fee?
If you take out an invoice factoring or discounting facility, you may be charged a refactoring fee. This fee is normally only charged where you have unpaid customer invoices that have gone past an agreed approval period.
Each lender sets its own terms on refactoring fees, so check this when taking out an invoice finance facility. The period is often 90 days from raising the invoice, and the charge is often the same as the service fee.
In most cases, if all your invoices are paid on time you will never pay this fee.
How a refactoring fee actually bites
The charge is usually applied monthly, for each month the invoice remains unpaid beyond the recourse period, and it is calculated on the full invoice value rather than the amount you drew. An invoice that runs 60 days past recourse can therefore attract the fee twice, on the whole invoice, while simultaneously being pulled out of your funding availability.
That combination is what makes it painful. You lose the cash and pay a fee for the privilege, on money you have not received. Businesses whose customers routinely pay late can end up paying refactoring fees every month as a standing cost of the facility rather than as an exception.
Two things reduce it. Negotiating a longer recourse period at the outset, 120 days rather than 90, buys headroom. And some lenders will waive or cap refactoring where the delay is a known contractual retention rather than a payment problem, which matters in construction and any sector working on applications for payment.
Related terms
See also recourse period, which determines when this fee starts, and discount fee.
For every charge a facility can carry, see the costs of factoring. For the facilities themselves, see invoice factoring and invoice discounting.
Bolton Business Finance is a whole of market commercial finance broker. Call 0161 546 9128.
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