Termination charges, or settlement charges, are the fees levied by factors when a client ceases their finance arrangement before it has expired.
If you are considering entering into an invoice finance contract, it is important to be aware of all the potential costs. This includes looking at the level of early settlement charges and assessing the impact on your business if you were to incur them.
Many credit arrangements, both in personal and business finance, make use of early settlement charges. They are a common commercial practice, but are rarely invoked, because most credit deals come to a natural conclusion in line with the original contract.
Negotiate acceptable termination charges
One way to reduce your exposure to higher costs for early termination is through negotiation.
Shopping around for the best invoice finance deal allows you to explore the different options offered by a variety of lenders. It also gives you the chance to negotiate better terms, as a number of lenders could be interested in your business.
It is unlikely that you will be able to avoid a deal which makes some provision for early settlement charges. Lenders make their money from providing finance and need to be able to recover their costs should a finance arrangement terminate earlier than anticipated.
However, it is in their interest for the contract to run for the specified term, which could be three, six or twelve months. They, like you, would prefer that the early settlement charges remained a fee on paper and were never levied.
Plan ahead to avoid invoice finance settlement costs
There are many different reasons why firms cancel their invoice finance arrangement early and incur termination charges.
By planning ahead, you can minimise the risk of this needing to happen. While some events are impossible to predict, you can forecast what is likely to happen over the coming year or so. Successful businesses thrive through their ability to plan.
You should consider the different situations that could cause you to withdraw early from the contract, and assess the chances of these happening and the potential costs. You should also consider that were invoice finance no longer to be required, it may be more cost effective to allow the arrangement to run its course rather than cancel it early.
Only you can avoid such charges by calling us on 0845 388 9725 where our team of experts will thoroughly talk you through the negotiable options available or get an invoice factoring quote.