Should You Consider Invoice Factoring?

Invoice factoring might be right for you, but it's crucial to look beyond the base fee. Consider how your business could boost its earnings through factoring. Let's delve into factoring more deeply to aid your decision-making process.

What affects the costs and advance rates in invoice factoring?

Several factors influence it:

  • How creditworthy your customers are
  • The amount you bill each month
  • The average invoice amount
  • The average time it takes for payment
  •   Fees typically range between 2-5% of the invoice's total. For instance, a 3% fee on a $1,000 invoice is $30.

    What exactly is an advance?

    It's the sum you get right away when we buy your invoice. Once your customer clears the invoice, you receive the remainder. Advances typically range from 60-95% of the invoice's total. For example, an 80% advance on a $1,000 invoice is $800. When your customer pays, you receive the balance of $200 minus the factoring fee.

    How does factoring compare with bank loans?

    Factoring might seem costly compared to bank loans, but there's more to it. Here are five common queries/concerns from potential factoring clients:

    A whopping 3 points per month? That's 36% annually!

    (Rates generally range from 1.5-3 points) It's easy to yearly calculate these numbers, but it's not a fair comparison. While banks lend at an annual interest rate, we purchase your invoices at a discounted price. These are distinct products, and making a direct comparison would be incorrect.

    Banks provide money once, the day you receive the loan; we provide money continuously. Think about a $100,000 bank loan at 12% interest. You get the $100,000 once and pay $1,000 in monthly interest, but you still owe the initial amount. In contrast, factoring $100,000 monthly gives you access to $1.2 million over the year. With a 3-point discount, your yearly fees would be $36,000, which equates to 3% of $1.2 million. Plus, at year's end, you're debt-free!

    I'm only making a 3% profit; how can I afford a 3-point fee?

    Even a business with a mere 3% net profit can boost its sales volume by factoring, which can increase the profit margin as fixed costs don't rise with volume. The additional business with a higher marginal profit can lead to a better overall profit margin. As sales grow, production costs fall, and profits rise. Costs like rent, electricity, and insurance don't necessarily increase with business volume.

    Let's crunch the numbers assuming you can double your sales

    Without Factoring

    Monthly Gross Sales-$50,000
    Cost of Goods Sold-$30,000 (60% of Gross Sales)
    Monthly Gross Profit-$20,000 (40% of Gross Sales)
    Fixed Expenses-$10,000
    Variable Expenses-$8,500 (17% of Gross sales)
    Factoring Fee-N/A
    Total Expenses-$18,500 (37% of Gross Sales)
    Monthly Net Profit-$1,500 (3% of Gross Sales)

    With Factoring

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

    But I only receive 80% of my money immediately!

    (Advances typically range between 80%-97%) Suppose you start factoring in January with an advance rate of 80%. You factor $100,000, and we give you $80,000 upfront. The remaining money comprises the fee (3%) and the reserve (17%). In February, you again factor $100,000 and receive $80,000, plus your January reserve of $17,000 (if your customer pays in 30 days). Thus, in February and beyond, you effectively receive 97% of your cash flow.

    But what if my customers take more than 30 days to pay?

    You have several options. For instance, you could bill your client as usual and wait 30 days before factoring the invoice. That way, you only pay a 30-day fee. Another strategy is to factor the invoices of your faster-paying customers first to get the cash you need.




    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...