Understanding How to Reduce Invoice Factoring Expenses
When small and medium-sized businesses find themselves stuck on 30-90 day payment terms and are finding problems with maintaining stable cash flow, invoice factoring is a financial tool that bridges these gaps in cash flow and creates immediate working capital.
As the prime candidate for A/R factoring is businesses that need to improve their cash flow, saving money wherever possible is essential. When businesses in need of invoice factoring need to reduce costs and optimize their profits as much as possible, there are a few key methods that can be used to offset factoring expenses.
Learn more about invoice factoring with our invoice factoring FAQ.
Keep Invoice Factoring Costs Down
Delay Submitting Invoices
A creative strategy to reduce factoring costs is to delay the submission of the invoices for factoring. By aging your invoices for 10-20 days, the factoring fee will be decreased. An example of this is if you have a 90 day invoice, and wait 20 days before submitting for invoice factoring.
Your factoring fees will now be based on a 70-day invoice instead of a 90-day invoice, reducing costs. However, before using this method, check with your factor to ensure that they allow this. Bankers Factoring allows holding invoices to keep your factoring costs down.
Continue your understanding with our comprehensive guide to factoring invoices.
Daily Factoring Rate versus a 10 day Rate or a 15 day Rate
Factoring agreements with invoice factoring companies can be charged in different ways. One way is a flat factoring fee for the first 25-30 days and then a daily factoring rate thereafter. However, many factoring companies will charge a 10 day or 15 day rate. This means if your invoice amount is paid in 31 days, you could pay for 40 or 45 days of factoring fees.
Bankers Factoring always uses a daily rate after the initial 25-30 day rate, thus holding factoring costs down.
Please read understanding factoring fees and rates explained.
Purchase Goods or Materials in Bulk
Many wholesalers and distributors your business buy supplies from offer great discounts when you buy their product in bulk. But before invoice factoring – you may not have had enough funds to buy these larger bulk amounts, even if you would have benefitted from the increased amount of product.
Now, with invoice factoring, you can have a quick injection of working capital into your business, and you can now afford to buy these supplies in bulk, gaining access to the lower costs, effectively saving money, and supporting business operations all in one.
Understand traditional loans vs factoring and how invoice factoring can provide greater accessibility as a financing solution in this tough interest-rate environment.
Factor Faster Paying Customers Outstanding Invoices
As the costs of factoring increase, the longer your customer takes to pay. By targeting your customers who pay faster first, you are able to reduce costs and increase cash flow when using our invoice discounting. This will also allow you to gain the reserves from the cash advance sooner, further increasing your profits.
While this method does allow for decreased expenses, it is not always viable to factor your faster-paying customers first, and it is still more than encouraged to factor your slow-paying customers.
Eliminate Early Payment Discounts on Unpaid Invoices
Early payment discounts are often used to motivate customers to pay early, giving a 1-2% discount when they pay within an earlier time frame. However, when using invoice factoring, the use for early payment discounts becomes obsolete.
Because you are going to be gaining a cash advance on your invoices anyway, there is no reason to offer early payment discounts. By eliminating early payment discounts thanks to A/R factoring, you are able to save this money you otherwise may have lost, saving the 1-2% discount that can now be used to cover factoring costs.
Learn about how factoring companies buy accounts receivable.
Fund Additional Sales
With the extra cash you’ve found yourself with from invoice factoring and your gaps in cash flow bridged, you can now take on orders that you otherwise might not have been able to. These increased sales will allow you to improve your profits even further, allowing you to create more active working capital.
And when you’ve found yourself able to take on more orders thanks to the benefits of invoice factoring, you can now factor these new transactions and take even more advantage of invoice factoring.
When your business has been denied a business or bank loan, read our article how to obtain financing after business loan denial.
Find Low Rates with Bankers Factoring
When learning about these strategies to reduce factoring expenses, understanding the low rates that Bankers Factoring provides when you choose to work with us can bring even more financial confidence to you and your business.
We pride ourselves on being fully transparent about our costs, with the goal of having rates so simple you can calculate them on the back of a napkin. Clearly defined terms and zero hidden fees is the name of our game.
Read our article factoring rates explained and learn further.
How Much Does Bankers Factoring Charge?
Working with Bankers Factoring, our rates start at .9% to 1.6% per 30 days. Using this format and means of payment, we are able to keep our rates low, and our rates are even cheaper than swiping a business credit card.
With our low fees, Bankers Factoring will never overcharge you, as we work to support your financial health to the fullest in every aspect of the invoice factoring process. Our goal is not only to get your business but to truly support your company’s financial health.
We also release reserve every week, unlike many factoring companies who hold your earned factoring reserve for weeks at a time.
Understand more about why you should choose Bankers Factoring to support the growth of your small business.
As owner-employees, we are business owners ourselves, and we understand intimately the ins and outs of running a business. With our award-winning invoice factoring services, we will never take advantage of the trust that you afford us. We also want to encourage your growth, and so when working with Bankers Factoring, we offer a special sliding scale, meaning that as your business grows and becomes larger, taking on bigger and better orders, your factoring fees will decrease.
Got more questions? Read how much does invoice factoring cost and have them answered.
Bad Debt Protection with Credit Checks from Bankers Factoring
Bankers Factoring also offers a unique financing option to your business: non-recourse factoring. Non-recourse factoring means that if your client becomes unable to pay the invoice because of credit issues, we will absorb this loss for you, taking on the credit risk and protecting you from bad debt.
When strapped for cash, non-payment can be devastating. With Bankers Factoring, any threat of non-payment for credit reasons becomes irrelevant, and you can rest easy with the true safety and security that we provide for your business with our non-recourse invoice financing programs.