Compare Factoring Service Prices - BUYERS GUIDE 2018
What Are Factoring Services, and What do They Cost?
Essentially, a factoring service becomes the manager of your accounts receivable department. The cost of factoring services depends on the amount of the invoices that you ask them to take on for you. They typically charge on a percentage basis. This amount is known as the “Factoring Fee”. These fees range from 1 to 5 percent. So, if you have accounts receivable of $10,000 per month, the services could cost you anywhere from $110 to $500, but the amount is always dependent on the actual value of your outstanding invoices.
Compare Factoring Service Pricing
Because your outstanding invoices belong to the factoring service that you hire, they advance you the cash for a significant portion of the invoices you have outstanding. This helps businesses establish continuous cash flow instead of having to wait on the collection of every single invoice. Factoring services can be useful for a business that has a lot of cash flow via accounts receivable, but needs access to that cash faster.
Factoring services are excellent alternatives to bank loans or credit for extending your cash flow. Once your invoices are collected by the factoring service, you will be paid the difference between your advance and the actual value of the invoices, minus the factoring service’s fees.
What to Look for in a Factoring Service
One of the main things to keep your eye out for when shopping for factoring services is the additional fees that may be tacked on to the primary factoring fee. Some companies will charge you an initial setup fee, and others will charge a per-invoice processing fee. These fees might seem small at first, but if you have a large number of invoices they can add up quickly, so it always pays to check first, as there are options out there who do not charge these added fees.
The policies of a factoring company should also be examined carefully to make sure they meet the needs of your business. For example, some have limitations on the number or value of invoices they will take each month, while others place caps on how long an invoice can be outstanding. Another very important thing to look for is how much of your invoice’s value they will advance to you. Some companies will only advance 80%, while others might go as high as 95%.
Finally, be careful of any company that requires you to sign a contract or commit to a certain number of months or years of utilizing their service. This is a bad way to get trapped into a service that might not fit your needs for any number of reasons.
Factoring Service Sample Costs
Below are a few examples of prices for Commercial Mortgage Loans which will give you an idea how much you will pay for your purchase.
- 1% - 2% average Minimum Rate Percentage
- 85% to 95% average Initial Percent Funded
- 60 – 120 days is the Maximum Overdue Accounts
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