What is the Cost of Factoring Receivables?
Invoice Factoring Cost Summary
Factoring companies charge discount rates of 1% to 5% for a specified term, depending on your business’s risk, the cash advance amount, and monthly receivables volume. Additionally, risk is typically measured by the credit quality of your customers or account debtors. Therefore, stable Businesses can qualify for the best invoice factoring cost and rates.
Receivable factoring costs at Bankers Factoring run from .9-1.6% per 30 days, including bad debt protection. We think the best factoring companies are always non-recourse.
However, hidden fees can creep up depending on your factoring company. The average factoring agreement includes an initial cash advance, discount rate, and cost structure. But Bankers Factoring offers non-recourse factoring with no hidden fees and rates starting at .9-1.6% per 30 days. We also offer a sliding factoring cost scale as your business grows.
How much does invoice factoring cost?
The factoring rate, also called the discount rate, ranges from 1% to 5%, depending on the factoring company and the factoring agreement. Conditions contributing to your factoring cost include your monthly sales volume, total accounts receivable (A/R) amount, and your customer (account debtor) credit profile. It is essential to understand the two invoice factoring agreements; “recourse” and “non-recourse.”
Full or Recourse factoring is when the responsibility of unpaid invoices goes to your business as the creditor. Without or non-recourse factoring refers to the factor responsibility for uncollected receivables due to account debtors’ slow pay, insolvency, and bankruptcy.
Contact Bankers Factoring today to learn about a non-recourse factoring agreement that includes bad debt protection, rates starting at .9%, and up to 93% cash advances.
Average Invoice Factoring Rates
Typical invoice factoring costs start around 1% and go up to 5%, contingent upon the risk associated with your receivables, debtors, and operating industry. Complete factoring rates include your discount or rebate rate and additional fees. Bankers Factoring adds value by including bad debt protection with no hidden fees. With us, you only pay the factoring rate.
Keep reading the full article, Factoring Rates and Fees Explained.
Determining Factor Financing Rates
Factoring companies charge rates based on a percentage or discount to finance your business. A/R factoring rates are typically charged on your gross monthly sales over a specified period. For example, a factoring company may charge 2% for 30-days and then 1.25% per 10-days following. Discount rates or factor rates are straightforward to understand.
Four main criteria determine invoice factor rates for invoice funding services:
Customer Risk
Risk is determined by your company’s type of business (industry), the creditworthiness of your customers, and the value of your receivables.
Invoice Factoring Volume
Volume refers to the number of invoices you factor monthly and the total dollar value per month. As your monthly receivables increase, your factoring rates become more cost-efficient. The invoice amount will affect your rate, too.
Invoices Time to Pay
The time required to finance your invoices relates to the credit terms extended to your account debtors. For example, NET 30 terms will pay within 30-days.
Invoice Factoring Advance Rate
The advance is how much funding your business receives after the initial account setup. This ranges from 80 to 93%, depending on your industry and business.
Factor finance costs are typically prorated, given how long your customers take to pay. Rate costs are lower for companies with lower overall risk and more accessible receivables to manage.
Rate costs are usually prorated based on how long your invoices take to pay unless you have a flat fee schedule. Businesses with complex receivable processes and riskier industries tend to have higher rates.
Keep reading the full article, Understanding Factoring Rates and Fees.
Types of Factoring Cost Structure
- Flat fee factoring rate: a one-time cost when your customer pays invoices within terms. For example, 94% advance with a 6% flat fee. You see this in small trucking factoring.
- Split fee factoring rate: a hybrid cost model with different rates in accrual periods. For example, a 3% factor rate for the first 30-days and 1% per additional 10-days following. Factoring companies can offer you daily, weekly, and monthly schedules.
- Daily fee factoring rate: discount rates charged daily is used in scenarios with quick debtor payment cycles. Bankers Factoring typically uses a daily rate after the initial 25-day or 30-day rate. For example, 1.4% for the first 25 days with a .065% daily rate thereafter.
- Prime plus factoring rate: prime plus factoring fees accrue each day an invoice is unpaid. The daily rate is the current prime lending rate plus an annual rate based on your cash advance. This is more like a traditional line of credit for large volumes of receivables.
Invoice Factor Rate versus Invoice Factor Fee
Finding the best factoring rate is critical to protect your margins. Understanding if your factoring company charges additional fees on top of your discount rate is crucial—the total cost of the factoring agreement matters for your invoice financing services. The total price of factor finance includes the discount fee or factoring rate and your factoring advance.
Factor fees refer to administrative charges, processing fees, account setup costs, and other hidden fees from your factoring company. It is vital to find reliable factoring and get your best prices. Bankers Factoring protects our clients with bad debt protection, no hidden fees, and rates starting at .9-1.6% per 30 days.
Understanding the Best Factor Company Rates
The best factor rates start at .9-1.5%, with Bankers Factoring advancing you 80-93%. Rates and advances vary by business, industry, A/R volume, and general credit risk. Non-recourse factor financing provides bad debt protection and the lowest factoring company rates.
To receive the best cost for factoring, your customer credit quality and the stability of your business help secure the cheapest lines of finance.
Understand how factoring works, then call us at Bankers Factoring to see how you can increase sales and profits even with the cost of invoice factoring your business and our aggressive fee structure.