How Much Do Invoice Factoring Services 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 6 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. Get Real Pricing Here:
Eighty-two percent of small and medium-sized businesses fail due to insufficient cash flow.
Even businesses that manage to stay afloat can hemorrhage money and employee time chasing after outstanding accounts receivables. In addition to being enormously frustrating, that process directly drains away time and money businesses could be investing in growing their market share, improving their products, and other growth opportunities.
Factoring services eliminate cash flow stress and empower businesses to thrive.
What Is Invoice Factoring?
Factoring is a form of business financing. Unlike loans, however, factoring is not considered a type of debt.
Under the factoring process, companies provide products or services to their customers. They then invoice the customer for the work or products, creating an account receivable. The company then sells that account receivable to a factoring service at a discounted price.
The factoring service immediately pays the company the total discounted price. This creates instant cash flow and relieves the company of any further effort in the billing process. The factoring service then collects the total amount of the original invoice from the customer.
Under this process, companies never directly pay a factoring service. Instead, factoring service costs are measured by the percentage discount at which the service purchases the invoice.
Who Should Use a Factoring Service?
Almost any business in any industry can benefit from using a factoring service. Factoring is appropriate for businesses of any size. It may be particularly beneficial to:
- Small or medium-sized businesses
- Businesses with limited staff or experience to devote to billing and chasing outstanding balances
- Businesses whose clients require long turnaround times on paying their bills or who are prone to paying late
- Companies that need especially strong cash flow to support growth initiatives
Examples of industries in which using factoring services is a common practice include:
- Government contracting
- Wholesale distribution
How Much Does Factoring Cost?
One of the first questions companies typically ask when they consider factoring is “how much are factoring services?” The simple answer is that it depends on the company providing the service and the total dollar value of the accounts receivable involved.
On average, factoring service prices run between 1% and 6% percent. This amount may be referred to as a factoring fee.
Comparing Factoring Service Prices
When seeking to compare factoring service prices, it is important to keep in mind that the factoring fee is not the only criterion on which to judge. Some companies may charge a slightly higher fee in return for providing more advantageous services.
Factoring reserves are a prime example.
Factoring reserves are when factoring services do not pay the full discounted amount of the account receivable to the seller at the time of purchase. Instead, they pay only part of the agreed-upon cost. The balance is not paid until the factoring service collects its money from the customer.
For example, in a non-reserve situation, Company A sells an account receivable worth $100 to Factoring Service B (FSB) at a 5 percent discount for $95. FSB gives Company A the full $95 at the time of sale.
In a reserve situation, FSB might only pay Company A 80 percent of the agreed-upon cost, or $76, at the time of sale. FSB would not pay Company A the remaining $19 until whenever they received the full $100 of the initial account receivable from the customer.
While the amounts in this example are small, in real life reserves can result in companies still seeing significant amounts of money left outstanding with no firm receivable date.
Choosing a Factoring Service
When selecting a factoring service, it is essential to look at more than last years factoring service prices. Companies should also consider:
Does the company have an online portal that gives you 24/7 access to your account and invoices?
Do they allow you to submit invoices digitally, or require that you mail hard copies?
Does the factoring company hold some money in reserve or pay you the full agreed-upon cost upfront? How quickly do they pay? How quickly do their customer service staff respond if you have issues or questions?
Does the factoring service company allow you to work with them on an as-needed basis, or do they require you to sign a contract of some kind? It is important to evaluate the terms of any contract, as they may contain hidden fees or additional costs.
Highly Rated Factoring Services and Their Costs
To best understand factoring service prices it can be helpful to look at a few of the top contenders in the field and their current pricing. Here are a few examples of top companies and their current factoring fees.
- Riviera Finance (2 percent)
- Factor Funding Co (1.5 percent)
- Universal Funding Corporation (0.55 percent)
- CIT Factoring Service (2 percent)
- Liquid-Capital (1 percent)
- 1st PMF Bancorp (1 percent)
When comparing factoring services, it is often helpful to use a third-party service to get a simplified overview of your options. Third-party tools can simplify and streamline your searching by helping you:
- Learn what to look for
- Ask the right questions
- Identify your company’s key needs
- Eliminate contenders who are not a good fit
- Find companies you might otherwise have missed
Discover What Factoring Can Do for You
With factoring service prices being so affordable, demand is on the rise.
Don’t let your company get left behind. Get a quote today and discover what factoring can offer your business this year!
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 that 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 in 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 that will give you an idea of 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
Factoring is a financial tool that involves selling outstanding invoices to a third party at a discounted rate in order to receive immediate capital. This article will discuss the advantages of using factoring services and how they can be beneficial to small business owners. It will also explain the process of how it works, what types of invoices are accepted, and any other details that may be important for potential customers.
Unlocking Your Business’s Cash Flow with Factoring Services
Managing cash flow is one of the main challenges most businesses face, especially small business owners. It can be difficult to predict when money will come in and even worse if money is tied up in unpaid invoices. This is where factoring services come into play. Factoring services allow you to quickly access the funds tied up in outstanding invoices without having to wait for customers to pay.
How Does Factoring Services Work?
Factoring works by selling your unpaid invoices to a third party, known as the factor, at a discounted rate in exchange for immediate cash. The factor then collects on the invoice and receives its full payment when the invoice is paid. This allows you to access funds in a quicker and more efficient manner without having to wait for customers to pay.
What Types of Invoices Can I Use with Factoring Services?
Factoring services generally accept most types of invoices, such as accounts receivables, medical bills, and legal fees. However, each factor may have its own requirements for the types of invoices it accepts. It is important to do your research and read the fine print before signing any agreement with a factoring service.
Are There Any Disadvantages To Using Factoring Services?
Factoring services are generally considered safe and reliable but there are some potential drawbacks. One of the biggest drawbacks is that you will have to pay a fee for the service, which can range from 1-5%. Additionally, it may be difficult to find a factor who is willing to work with small businesses due to the perceived risk.
Factoring services are a great way for businesses to access funds quickly and easily. They can help businesses manage their cash flow effectively and provide a source of capital when needed. However, it is important to do your research and make sure you understand the terms and conditions before signing up for a factoring service. This will ensure that you get the best deal possible and avoid any potential pitfalls.