Invoice Factoring Rates and Discounting Cost Answers.
At Bankers Factoring, discount factoring costs .9-1.6% per 30 days.
Do you need more funding for daily operations? Need help paying your bills? What To Do If I Cannot Make Payroll?
If you are asking yourself these questions, you are not alone. 38% of businesses fail due to insufficient funding. Invoice factoring helps improve cash flow by selling your unpaid invoices for fast cash. But is Invoice Factoring Cost Effective?
Read our article on factoring fees, and rates explained.
For .9% to 1.6%, you can receive business funding within three to five days of 80-93% of invoice value. Complete an online funding application today to begin your invoice discounting service.
Invoice factoring or invoice discounting is a financial service used by many businesses to improve cash flow. It allows your company to access funds faster. Still, some people do not know how invoice discounting costs are determined or what other costs might come with it.
In this article, we will look at the different factors that can affect the cost of invoice discounting and explain how those costs are calculated so you can make an informed decision about whether it is worth using this financing option and to determine the true cost of factoring receivables.
How is factoring cost calculated?
Factoring cost is calculated according to how much you want to factor, the customer concentration of your invoices, and the type of business (industry). Factoring cost is called the discount or rebate rate, which is how much invoice financing costs your company. Bankers Factoring evaluates your factor cost based on your overall risk and the creditworthiness of your customers.
Read our additional article on how much invoice factoring costs.
Main factors used to calculate invoice discounting costs:
- The monthly volume of invoices
- The total value of your accounts receivable (A/R)
- The risk associated with your customer’s credit
- The concentration of your customers – how many customers make up your A/R value?
- Standards and benchmarks related to your industry or business model
There are two main types of factoring services: non-recourse and recourse. Bankers Factoring The Best Non-recourse Factoring Company include credit protection in our factoring services for no additional fees.
The main benefit of non-recourse factoring is having bad debt protection if your customers become bankrupt, run out of money to pay invoices, or short-pay bills. Recourse factoring means you cover bad debt and cash flow losses from customer default.
Some factoring companies pass along the other fees and costs for their services. It is essential to read your proposal and agreement to ensure there are no hidden fees. Bankers Factoring provides a transparent service showing you all invoice financing costs.
Related article: How Much Does Invoice Factoring Cost?
How does invoice factoring cost compare to a business loan?
Invoice factoring is a short to medium term, cost effective solution for businesses that need to access cash quickly. It’s not a loan; rather than taking on debt, you sell your invoices and use the proceeds for expenses, payroll financing, and growth. You will need your accounts receivable as collateral to secure your funding.
That means your business can benefit from quick funding without waiting for approved loans or until customers pay up. Invoice factoring allows you to receive cash immediately. Once your customer pays in full, we take our discount rate off the top.
Related article: Understanding Factoring Rates and Fees
What do invoice discounting companies charge?
Invoice discounting costs include your factoring rate and other fees. The percentage charge of factors costs comes in various accrual periods. The discount fees can accrue per 30 days with a daily fee, after which can be called a split \or hybrid fee.
For example, you receive a factoring rate of 1.5% for the first 30 days and a daily rate of .05% after that.
Most invoice factoring companies charge you hidden fees for additional services or transactions. Understanding your service agreement’s administrative, trade, and management fees is vital.
Related article: How Much Do Factoring Companies Charge?
Invoice Financing Cost Example
Suppose you are a Startup Staffing Agency with unpaid invoices for services rendered but need help to meet weekly Payroll. Contact Bankers Factoring to secure fast working capital and avoid the Net 30 or 60-day payment terms.
We provide the following example of factoring cost structure:
- The rate for the first 30-days is 1.5%
- The daily factoring rate thereafter is .05%
- Factoring amount: $100,000
In this example, if your customer pays within 30 days, your discount fee is $1,500. If your customer misses the first window, you accrue an additional .05% per day or $50.
Why are the costs of invoice factoring not the same?
The costs of invoice factoring are different for every business. Several factors affect your invoice factoring costs, and they include the following:
- The industry you work in
- Your customer creditworthiness
- The amount of unpaid A/R invoices you have
Related article: A Guide to Acquiring a Business Line of Credit with Poor Credit
The Actual Cost of Invoice Financing
Factor cost relies on your customer’s ability to repay unpaid invoices, your personal credit, and the risk associated with your industry.
Factoring is a financial tool that companies of all sizes can use. It allows the business to get cash upfront for invoices instead of waiting 30 or 60 days before getting paid. Factoring is unlike a loan or line of credit, where a bank lends you a lump sum of funds with monthly interest and principal payments. Factoring is the sale of your A/R assets with small fees or charges.
Read our Invoice Factoring FAQ.
Before signing any factoring contracts, ensure you have all the information about factoring fees and terms so there are no surprises down the road with any factoring company and their typical factoring fees.
Be careful of MCA or online lenders as their true cost can compute to an APR of 150-300%.
Look for Hidden Factoring Costs and Rate Structures like:
- Monthly Access Fee
- Service Fee
- Same Day Funding Fee
- Client credit approvals fee
- Application Fee
- Advance rate % to invoice face value
- Origination Fee
- How they calculate the factoring fee-total invoice or advanced amount?
- Exhorborant Wire Fee
- Days to fund fee
- ACH Fee
- Processing Fee
- Late Payments fees
- Minimum Invoice Size Fee
- 10 day fee trigger
- 15 day fee trigger
- Float days after the customer pays the invoice
The best way to compute your invoice factoring fees is to divide the total cost into the outstanding invoices amount. If your invoices pay in thirty days or less, that will give you your true invoice factoring cost per 30 days. Sadly, many factoring companies have hidden float days and hidden fees, making it difficult to compute your actual cost of receivable financing.
In addition to the factoring rate and invoice factoring fee, understand when the factoring company releases your paid factoring reserve. Holding your reserve increases the true cost of factoring to you.
Should you have any more questions about the true cost of factoring receivables and how you can get started with low factoring fees, feel free to reach out to an award-winning invoice factoring company, Bankers Factoring, and our non-recourse factoring credit line.