Invoice discounting cost answers.
At Bankers Factoring, discount factoring costs 1-1.9% 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 1.9%, you can receive business funding within three to five days. 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 expenses 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.
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 additional 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 a 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. Your accounts receivable is the only collateral needed 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. Factors costs are a percentage charged in various accrual periods. The discount fees can accrue per 30 days with a daily fee after this is 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 factoring companies charge you hidden fees for additional services or transactions. Understanding administrative, trade, and management fees in your service agreement are 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. You contact Bankers Factoring to secure fast working capital and avoid the Net 30 or 60-day payment terms.
We provide the following 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 credit scores
- 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 fees and terms, so there are no surprises down the road.