Is Invoice Factoring Right for You?

Should you consider invoice factoring for your business? It's not just about the base fee. You should also consider how factoring might boost your company's profits. Here's more info to help you make that call.

How are fees and rates for invoice factoring decided?

It's determined by several things:

  • How good your clients are at paying
  • How much you bill each month
  • The typical size of your invoices
  • How long it usually takes to get paid
  •   The fees usually fall between 2-5% of the total invoice amount.

    For example, if an invoice is $1,000, a 3% fee equals $30.

    What's an advance?

    That's the cash you get right away when we buy your invoice. You get the rest when your customer pays the invoice. Advances typically range from 60-95% of the invoice's total.

    For example, if an invoice is worth $1,000, an 80% advance equals $800. The rest ($200 minus the factoring fee) is given to you when the customer pays.

    How does factoring compare to bank loans?

    Factoring can seem pricy compared to bank loans. Here are five common questions/concerns potential clients have:

    Wow! 3 points per month!

    That's 36 percent a year! (Rates vary from 1.5- 3 points) It's tempting to see it as an annual cost, but it's not a fair comparison. Banks lend money at an annual rate, while we buy your invoices at a discount. They're different services.

    Banks give you money once, when you take out the loan; we give you money regularly. For example, if you get a $100,000 bank loan at 12 percent, you receive the $100,000 just once and pay $1,000 a month in interest. But if you factor $100,000 every month for a year, that's $1.2 million. A 3 point discount on that would be $36,000 for the year, still 3 percent of $1.2 million. Plus, you're not in debt at the end of the year.

    My business only makes a 3% profit, how can I afford to pay 3 points?

    A business with a 3% profit margin can do more business through factoring, which could increase the profit margin. More business means lower production costs and more profit. Fixed costs like rent or insurance won't rise much, if at all.

    Here's a breakdown assuming you can double your sales with factoring:

    Without Factoring:

    Monthly Sales-$50,000
    Cost of Goods Sold-$30,000 (60% of Sales)
    Gross Profit-$20,000 (40% of Sales)
    Fixed Costs-$10,000
    Variable Costs-$8,500 (17% of Sales)
    Factoring Fee-None
    Total Costs-$18,500 (37% of Sales)
    Net Profit-$1,500 (3% of Sales)

    With Factoring:

    Monthly Sales-$100,000
    Cost of Goods Sold-$60,000 (60% of Sales)
    Gross Profit-$40,000 (40% of Sales)
    Fixed Costs-$10,000
    Variable Costs-$17,000 (17% of Sales)
    Factoring Fee-$3,000 (3% Fee)
    Total Costs-$30,000 (30% of Sales)
    Net Profit-$10,000 (10% of Sales)

    But I only get 80% of my money upfront!

    (Advances usually range from 80%-97%) If you get an 80% advance and you start factoring in January with $100,000, you'll get $80,000 upfront, and the remaining $20,000 is split between the fee and a reserve.

    In February, you factor another $100,000 and get $80,000. Plus, you get your January reserve of $17,000. So for February, you actually receive 97% of your money.

    What if my customers take more than 30 days to pay?

    You have a few options. You could wait 30 days before factoring the invoice. Or you could factor invoices from your quicker-paying customers first.




    WE PROVIDE HUNDREDS OF MILLIONS IN CASH EACH YEAR

    We relieve your headaches and stress of collecting on accounts receivables.

    Most Convenient

    You have 24/7 account access 365 days a year.


    Always Reachable

    When you call, you get to speak to a real live person.


    Factoring is great for any business that offers services or delivered goods.



    Fast money for businesses that need it

    Don't wait long periods for a loan. Many of our factoring deals can take place in as little as 24 to 48 hours. If you need capital right now or are looking to expand then factoring is the way to go. We work on your time instead of you working on a bank's schedule.


    MAXIMIZE YOUR TIME BY
    MINIMIZING THE COLLECTION PROCESS

    If you need cash and you're sitting on a lot of unpaid invoices then factoring with us is the way to go. We'll give you the cash that your business needs and collect from your customers.


    NO DEBT - JUST CASH

    Debt is risky while at the same time being beneficial to growing a business. Start-ups can relieve themselves of the risk of debt and still create capital with factoring.


    CAN'T GET A LOAN

    If you're a start-up or your business has a poor history or credit then you can still get the cash that you need. Today's banking atmosphere makes it a challenge for even the most-qualified businesses to get a loan. Factoring takes care of all of that.


    HELP SMALLER BUSINESSES WITHOUT THE STAFF

    Without a collections department or a small staff, collections often come down to you doing all of the leg work. Our Factoring Service will alleviate that burden and provide the service that you're not equipped to handle.

     

    1-800-986-1859

     More Factoring Company Information 

    Types of Companies That Use Factoring
    Administrative services Advertisers Aerospace
    Business services and consulting Call centers Commercial food service
    Farming Government suppliers Information Technology
    Janitorial and cleaning Logistics Manufacturers
    Security and investigative services Staffing Telecom
    Textiles Trucking and freight companies Wholesalers
    And Many More...