Because there is less risk on the part of the factoring company, the rates are usually lower than non-recourse factoring agreements. The majority of factoring companies offer recourse factoring - where you are liable for the invoice value if your customer goes bankrupt and is unable to pay their debt. If you are just starting out, the entire process could take a week or two from proposal to funding. Once you have an agreement in place, it may be possible to get same day funding on factored invoices, especially if your customer has already had an invoice serviced by your factor. Additional Considerations Funding Timeĭuring the evaluation process, expect to get proposals in a day or two. How long have you been in business? How stable are your sales? If you are a newer business, you’re likely to receive a slightly higher rate. Low Risk IndustriesĪlthough your customers creditworthiness will have a greater impact on factoring rates than the health of your business, your track record still matters. Industries that require factors to have specialized knowledge to determine risk will also cause a rate increase. If your industry is know for late payments, defaults, or otherwise difficult clients, expect to pay more. If your customers have bad credit, expect higher fees. The extent depends on how the customer and the transaction are rated by the factor. Whereas volume makes the rate come down, customer risk makes it go up. In both cases they are collecting $50,000, however, doing a credit check and follow up for a single customer is 25 times less work for the factor. It is much simpler for a factor to collect a single $50,000 invoice than twenty-five $2,000 invoices from different customers. Average Invoice ValueĬlients with a high volume of large invoices command the lowest rates. Volume is a combination of the number of invoices and the total value. Bigger clients with more invoices always command the lowest rates. Volume is the most important factor for a factor to determine a factoring rate. Since factoring rates and advances can differ from one provider to another, it is definitely worth your time to shop around. Fill in your invoice value, advance rate, and factoring rate (using a 30 day average) to compare the per dollar cost of each proposal. Given these options, “Proposal 2” is the obvious choice.Ĭlick on the image above to view the spreadsheet. The larger advance offsets the higher factoring rate. “Proposal 1” has an advance rate of 70% with a 30 day average factoring rate of 3%.Īlthough “Proposal 2” has a higher factoring rate, it’s actually about 27% cheaper based on its per dollar cost. In the example below, the invoice value is $10,000. To calculate the cost, you need the invoice value, advance rate, and factoring rate. ![]() This shows you the cost of each dollar you’re getting in the advance installment. Per Dollar Cost of Factoringĭetermining the per dollar cost is the best way to compare proposals from competing factors. It’s better to focus on the per dollar cost of factoring – that is how much each dollar you’re advanced costs you. However, don’t get hung up trying to get the lowest rate. You have a better chance of negotiating flat rate pricing if your customers usually pay on time. Variable rate pricing carries a slight conflict of interest: since the factoring company handles collections, if they are slow to collect, it will end up costing you more since their fee increases the longer an invoice remains unpaid. Example variable rate fee structure: Rate Invoice Factoring Costs Average 30 Day Factoring Rates Industryįactoring companies often use a variable rate fee structure, especially in industries where customers often pay late or at irregular intervals. We also have another guide covering the best factoring companies. This guide will give you an overview of factoring fee structures and other costs you’re likely to find in an invoice factoring agreement and we’ll compare factoring rates with alternative financing options. Like most things, the truth is more complicated. ![]() Most businesses searching for invoice factoring rates assume the lowest rate is best.
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