When applying for invoice factoring, many factoring companies will ask for a due diligence fee. Due diligence is when the accounts receivable financing company checks the background of their prospective client. This includes checking for any existing liens on business assets, unpaid taxes, owner background checks, and can even require, in some instances, the work of an attorney to review contracts between the potential factoring client and its customers. These reports and services are outsourced to credit companies and professional firms that specialize in providing this type of information.
Generally a factoring company can incur anywhere to $1,000 – $2,000 to close a factoring account. Some factors require an up front check with an application just to consider the client. Others take an agreed upon fee out of the first invoices being financed. So the factor is only recouping a portion of the charges they pay to prepare the due diligence necessary to close a factoring deal.