Factoring Fee - a percentage discount is charged per time period off the face value of the account receivable. This fee is equal to the discount times the number of periods the invoice has been outstanding.

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Factoring Fees Explained

The important point to understand about Factoring is this: The advanced funding you receive for your receivables and the discount fees you will pay are based soley on the financial strength and credit worthiness of your customers, not your business! Discount rates will also vary depending on the total dollar amount you intend to factor on a monthly basis (volume discounts apply). Having said that, it is also important to understand that specific rates or fees for factoring your businesses receivables cannot be promised or quoted without knowing anything about your customers, your business, or the invoice amounts you wish to factor.

You will find that some factoring web sites are advertising a seemingly low discount rate that is presumed to be the rate any business will get if they factor with them. Understand that this is a ploy and is only a baited hook to get you on the phone! Once they have you on the phone and review all of your receivables it is only then you will learn the real factoring fees they intend to charge you!

Here we provide you with some examples of how the fees and funding can work. If you are interested in receiving an exact quote for factoring your invoices, please fill out our very simple getting started information form. A factoring specialist will contact you for a free consultation to tailor a factoring solution and fee structure that best fits your business. The information is free and the quote is yours to accept or decline.

Sample Fee Structure and Funding

Advanced Funding
When you send in an invoice to be Factored you will usually receive between 70% and 90% funding of the invoice amount within 24 hours after the invoice has been verified (depending on the invoice amount and the business paying the invoice). This is your advanced funding. Advanced funding is wired to your business bank account.

Discount Rate = Factoring Fee
The Factoring fee can range between 2.5% and 3.5% per 30 days, or .1% per day the invoice is unpaid after factoring. Keep in mind that factoring fees are tailored to the individual needs of your business and customer base.

Length of Time for Payment Sample Discount Rate
Per day 0.1%
30 days 3%
45 days 4.5%
60 days 6%
75 days 7.5%
90 days 9%

Remainder of the Advance minus the Factoring Fee
When your customer pays the invoice you will receive the remainder of the advanced funding, minus the Factoring fee (discount rate).

EXAMPLE
Lets say you have a customer ABC Company that owes your business $100,000 for a shipment of your widgets just delivered. ABC Company is a large customer that has good credit but they never pay their suppliers (you) any sooner than 45 days. Instead of anxiously waiting 45 days to get your $100,000, this time you decide to use Factoring to improve your cash flow. The Factoring company verifies your invoice to ABC Company and you receive 80% of the $100,000 ($80,000) within 24 hours, wired to your bank account. If you have a discount rate similar to the sample shown above and ABC Company pays the $100,000 invoice in about 45 days, this equals a factoring fee of 4.5% of the original $100,000 ($4500). Since you have already received an advance of $80,000 from the factor, you will receive the remaining $20,000 minus the factoring fee of $4500 ($15500). Therefore, in the end you collected $95500 of the original $100,000 invoice. However, this time you did not have to wait the usual 45 days to get your money. This time you received $80,000 up front in one day, and collected the remaining $15500 in 45 days.

Factoring: Cash Now! - No Waiting

 

What are costs of NOT Factoring?

Given the example above consider the time value of money and the benefits of improved cash flow to your business. By having cash for your invoices within 24 hours are you able to pay your suppliers faster and receive better discounts? Are you able to fulfill your next order to XYZ Company and make payroll without tapping your line of credit at the bank? Can you offer longer terms to larger customers and attract more business? Can improved cash flow help your business grow or survive without incurring more debt at the bank? Can the financial benefits of improved cash flow to your business offest the fees of Factoring, and then some? In many cases factoring is a smart business decision.

When is Factoring NOT a good fit for a business?

LOW MARGINS - If your business is running on low margins (less than 10%), factroing may not be right for you.

PLENTY OF CASH ON HAND - If you have a cash rich business free of cash flow concerns, factoring does not make sense for your business.

 

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