Factoring Fees – What You Should Expect
If you’re thinking about using factoring services, it is important to know exactly how much you will spend in fees and where the fees are coming from before you make any quick decisions. How are factoring fees calculated? What are the fees based on? Which industries have higher rates? Does my credit effect factoring fees? Will factoring create debt? We answer all these important questions below.
How Are Factoring Rates Calculated?
How much should your company expect to pay in fees when working with a factoring company? What are factoring services going to cost you? Factoring fees are based on the following:
- Yearly sales volume
- The creditworthiness of your customers
- The typical length of time it takes for your customers to pay
- Average size of the invoice
Fees for factoring services typically compound for the life of the invoice, though flat-fee structures are available for certain industries like trucking. Typically, the higher the annual sales volume, the lower the factoring fees will be. If you choose a non-recourse factoring program, expect slightly higher fees, since the factoring company is assuming more of the risk.
Typically, fees for factoring receivables start at around 2%, with a typical advance rate of 80%-90% depending on the industry. Advance rates for the transportation industry are generally higher. All of the fees associated will be highlighted in your factoring contract, which is important to read and understand.
Factoring Fees Don’t Create Debt
Unlike a business loan, invoice factoring is not considered debt on your balance sheet. Instead, you are converting your own receivables into cash you can use today instead of waiting as long as 90 days for customer payments.
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What Do Factoring Fees Cover?
Factoring fees help your factoring company provide superior service to every one of their clients beyond the cash advance:
Fast funding transfers
Once the factor approves your invoices, they will initiate funding within 24 hours. Don’t wait days or weeks when you need money now!
Your factor will engage in active collections efforts with your approval, speaking directly with your customers to facilitate and process payments. This gives you more time to focus on other areas of your business – including attracting new customers!
Background and credit checks
There is no need to pre-qualify your customers before submitting their invoices for factoring. The factoring company will run background and credit reports on your prospective customers at any point in the factoring relationship, and will even run periodic follow-up reports to catch any changes in their situation before they affect payments. You can serve your customers with total confidence!
24/7 online reporting
Your factoring fees entitle you to updated account reports. A unique login gives you access to reports on your account status, most recent transactions, and a number of other elements that you can incorporate into your business reporting.
The goal of factoring is to help your business grows. As you increase sales volume, factoring companies may offer a volume discount on your advance or lower factoring fees as an incentive for continued factoring. It truly pays to factor!
Factoring Made Easy
The process of factoring is simple:
- Submit invoices to factor
- The factor verifies the invoices and advances 80 to 95 percent of the invoice amount
- Continue running your business like always
- The factor collects payment and sends you the remaining invoice amount minus factoring fees.
Factoring is available for nearly every industry, and factoring costs are tailored to match the financial realities of each. Some of the industries Factor Finders serves include:
Starting the process is pretty simple. Fill out an online application and submit current invoices, a list of customers, and your Articles of Incorporation. After, you will receive a competitive factoring proposal including prospective factoring fees. Your business can qualify for invoice factoring in as little as 3 to 5 business days!
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Fill out a quote form and we can get you the numbers and start the process to get you funded quickly.