Factoring Fees and Rates Explained

How Much Do Factoring Companies Charge? Invoice Factoring Cost Discussed

Non-Recourse Factoring (Factor takes the Credit Risk) vs Prime plus Recourse Factoring

Invoice Factoring Rates & Factor Fees Revealed. How much does invoice factoring cost?

Invoice Factoring Rates Explained vs a Ledgered Line of Credit’s Cost

What Does Invoice Factoring Cost?

What is Invoice Factoring’s Cost to You?

Many Factoring companies make it difficult to calculate your true cost of invoice factoring. At Bankers Factoring (Bankers), our goal is that you can calculate your A/R factoring rates and fees, including credit protection, in your head. Here are non-recourse factoring rates and fees explained by an award-winning invoice factoring company.

Business Accounts Receivable Factoring is not algebra and, at its most complex, requires a small bit of multiplication. We want you and your CPA to understand the journal entries in factoring and the accounting math behind your cost of factoring receivables at Bankers, and what non-recourse factoring means for the success of your business through one of the fastest or more cost-effective business financing tools.

In this article, you will understand your factoring advance rate, discount rate, rate structure, and factoring fee. You will also understand how to read a factoring agreement or contract.

Invoice Factoring versus Invoice Financing

You will hear the terms invoice factoring and invoice financing used interchangeably. Typical, invoice financing is a line of credit or asset-based lending facility (ABL). In contrast, invoice factoring is the purchase of your good, and unpaid receivables on either a recourse or non-recourse basis by a factoring company. Your credit and time in business will also decide your choice of invoice factoring vs. invoice financing or ABL as a business owner.

With small business loans turned down at an 80-90% rate, many entrepreneurs who are turned down for a bank loan seek invoice factoring when researching factoring companies, MCA companies, and financing companies to understand their true factoring costs. Borrowing money for small business funding is stressful, and Bankers hopes to reduce that stress. Student loans can negate a bank loan while Bankers Factoring can still help you with unpaid student loans.

What is an Invoice Factoring Rate?

It should be easy to calculate discount rate or factoring fees, unlike the typical factoring fees with most factoring companies. We will discuss what factoring companies typically charge, the factoring agreement, the advance amount, additional fees, minimum credit rating, and common factoring rate structures in receivable financing. Also, don’t confuse factoring with merchant cash advances factor rates, where the cost can translate to a 100-300% interest rate or annual percentage rate (APR).

It is almost impossible to make money using a merchant cash advance or MCA (70-300% APR) versus factoring for small businesses, which replaces your credit department and accounts receivable department for a low 1.5-3%. Factoring can be slightly more expensive than short-term business loans from banks and is on par with personal loans with much more service-like credit protection.

If on a non-recourse basis like those offered by Bankers Factoring, selling invoices to a factoring company is a great tool for small business owners. In addition to credit control, we can also help with your journal entries to your sales ledger.

How much does it cost to factor your company’s invoices?

Selling your invoices is cost-efficient to inject working capital into your business. With high-interest rates and fixed rates after 30 days, companies can lose cash flow versus variable factoring rates. With Bankers Factoring, our invoice financing services have no hidden fees. We buy your unpaid invoices and charge a small factoring fee called the discount rate or rebate. The cost of factoring is less than swiping a credit card.

In addition, funding rates charged to your company cover risks associated with your cash advances. Our rates start at .9% to 1.6% per 30 days. Hidden fees can easily eat up your business’s cash flow; reading the factoring service agreement and understanding the potential charges, your average factoring rates, and the cost of factoring is critical. We want you to understand your total invoice factoring costs.

Invoice factoring costs at Bankers is as simple as 1.6% of the invoice amount if paid in less than 30 days versus the complicated invoice factoring rate tables used by other invoice factoring companies. Be careful about prime rate-based pricing as you can pay prime + 3% for the money, which now equals 11%, PLUS a factoring fee of 1-2%. With the Prime interest rate at 8.5%, even bank loans can be from 10-11% APR.

Please read strategies to offset the cost of factoring invoices.

What do invoice factoring companies charge?

Your fees and rates for selling invoices depend on the type of funding agreement or arrangement, recourse or non-recourse. Also, there are different types of rate structures:

• Fixed rates: One flat rate charge for the funding services, such as a 93% factoring advance rate with a flat 4% factoring fee.
• Variable Rates: Charges accrue in the period based on prime or going rates: a 90% advance rate with 1.5% for the first 30 days and a 5.5% daily factoring rate after that.
• Split Rates: Receive a fixed rate for 30 days, then accrue at a different rate per 10 days following. For example, 2% factoring fee for the first 30 days and then 1% for every 10 days after that.

The split rate method is the most common at Bankers Factoring, where we offer non-recourse factoring services. Our competitive discount rates allow us to provide additional cash flow that is cheaper than credit cards with our invoice factoring lines of credit.

What is better for safety and costs, a Recourse or Non-Recourse invoice factoring company?

For example, non-recourse factoring provides additional value to your business through bad debt protection. Accordingly, at no extra charge, your business is protected from unpaid receivables that your company sells. 

For example, if you sell Bankers Factoring $100,000 in invoices and your customer declares bankruptcy, we take on the credit risk and the bad debt. We always make a credit check determination on your customer paying the invoices. Unlike recourse lenders, we take on the credit payments risk.

Recourse service is when you take on the credit risk when selling invoices. In this instance, Bankers Factoring has the right to take recourse against the business and its assets. Recourse factoring is considered riskier for your business compared to nonrecourse factoring.

If you are a start-up, ensure your receivable factoring can go down with tiered pricing based on your outstanding invoices and sales growing over time. In addition to improving cash flow, slow-paying customers become our problem, the factoring company, not you and your company.

What is Your Cost of Invoice Factoring?

Your total cost to factor your invoices is your factor rate times the invoice amount. The higher the factor advance rate, the lower your overall cost. Also, an implied cost is how long the factoring company holds your reserve.

The following example of non-recourse accounts receivable financing includes the discount fee and the entire fee structure. The length of time the customer takes to pay is 45 days until the invoice is paid. Working capital is moved forward by 30 to 90 days to get you through any short-term cash crunch via our factoring services. Other factoring companies may have additional A/R factoring rates and factoring charges. All these additional factoring charges can eat into the margins of small businesses.

Also, read our article on how much factoring companies charge to turn unpaid invoices into same-day working capital via invoice finance business loan.

A Chart of Factoring Charges

Here is a chart comparing the Prime Plus Factoring with Recourse (or ledgered line of credit) method found on a popular Google Search for factoring rates versus Bankers’ No-Nonsense, No Credit Risk Factoring. We want you to understand what factoring companies clearly charge you and your total invoice factoring cost. Why wait 30 or 60 days for your customers to pay or resort to expensive merchant cash advances?

Invoice Factoring Rates Explained with an Example

$100,000 Invoice 45-Day Terms

And the above full disclosure rates include bad debt credit protection. Bankers Factoring takes the credit risk against your customers filing bankruptcy or going insolvent. In addition, your factoring rate structure could go down as you do more volume.

Depending on your industry and your company’s sales per month, your advance rate would be 80-93% with a factoring rate of .9-1.6% per month with a daily rate after the first 30 days. You will also see flat fee rates, but these tend to be at a slightly higher cost to you than a daily rate. Also, see how long most factoring companies hold the remaining balance or factoring reserve. Bankers Factoring releases reserve 3-4 working days after receipt. Many factoring companies will hold your factoring reserve for 7-15 days. Understand the factoring company or financing company’s reserve policy.

Pay special attention to the factoring advance rate or the percentage of the invoice you receive upfront. The advance rate changes your true cost to factor your invoices dramatically. Your true cost times your yearly sales will be the best way to compare high-volume factoring costs and reduce your cost of factoring. Non-recourse factoring is more than just an annualized interest rate.

How can small businesses get a better invoice factoring rate from a factoring company?

To lower your factoring receivables fees as a business owner, there are a couple of ways to accomplish this goal and increase your free cash flow. Extending payment terms to your customers requires working capital to cover expenses during the day’s sales outstanding (DSO) period.

The lower your DSO period or the longer it takes for the customer to pay, the better the impact it will have on your rates from a factoring company. Also, high concentration can increase rates if you are selling invoices from just one customer. Selling invoices from multiple customers lowers your concentration and monthly charges.

Most importantly, having creditworthy customers with established payment histories lowers your overall cost of factoring. Your customers pay Bankers Factoring, the invoice funding company. We extend invoice financing when we are comfortable with your customer’s payment history.

Questions Answered about Factoring Fees and Rates

We hope this has answered your questions about invoice factoring fees and charges and the two main types of invoice factoring- with and without recourse. Alleviate collection, credit, and small business cash flow problems with No-Credit Risk Factoring from Bankers Factoring, where business owners know their true accounts receivable factoring total cost among the different business financing options.

We want you to understand how factoring works, how invoice factoring rates are computed, how much it costs, and how it can fund your business. Turn outstanding invoices into fast working capital at a reasonable cost with Bankers. After setup, enjoy 80-93% of the invoice value on the same day with the best invoice factoring rates. Even if you were turned down for a small business loan because of your personal credit history, get the money to generate future sales and grow your business from Bankers with factor rates cheaper than swiping your credit cards.

Why Bankers Factoring for Low Invoice Factoring Costs and Great Customer Service

You will enjoy the invoice factoring process with the employee-owner family at Bankers Factoring, no matter where your small business company is in the entire United States. Invoice factoring with Bankers Factoring is cheaper than swiping a credit card and based on your customer’s credit score. Use invoice factoring to offer payment terms, turn unpaid invoices into fast cash, and fund your small business’s dream growth.

Ready for the owner-employees of Bankers Factoring to fund your entrepreneurial dreams with easy-to-understand factoring fees? Call 866-598-4295 or go to Bankers-Factoring-Application.

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