Factoring Fees Explained and Calculated
Are you thinking about invoice factoring for your business? If so, you may have this question – how are factoring rates calculated? We have compiled a general list of examples of factoring costs that you may see. Our infographic breaks down average factoring rates and explains the fees. These are just examples and will not be the exact numbers your business will see. No two rates are the same as factoring companies look at each business differently. The amount of money you bring in per month, your clients, industry, and other specifics tie into how much your business will be charged for factoring.
How are factoring rates calculated?
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Are you ready to get partnered with a factoring company in your niche? Give us a call or fill out a form on our website and we will match you with the best factoring company for your business. Still want more info on what we do? Check out our services page to see all the different types of funding we offer.
Infographic Text:
When your business submits an invoice, the advanced amount could be anywhere from 70-95%.
In the case displayed in the graph a 80% advance is used.
Each bill=$100
$10,000 Invoice
$2000 Reserve: Release vs. Rate Fee
The remaining amount is held in a reserve while the factoring company waits to get paid by your customer. Once the factoring company receives the invoice payment, the reserve is released to your business minus a factoring fee.
The factoring fee is taken out of the reserve amount before it is released to you.
In this case a 3% of the original invoice is taken as a flat fee.
$2000 Reserve
Simple Factoring Example
Each factoring company has their own rates that are based on the amount you are factoring, payment terms, and debtors. Each business will get a customized rate based on their company. Here is a small sample of general rates:
$10,000
Sell a $10,000 invoice to the factoring company
0.1$- The fee increases by 0.1% per day
1%- A 1% factoring fee if the invoice is closed in 10 days
3%- a 3% factoring fee if the invoice is closed in 30 days
6%- A 6% factoring fee if the invoice is closed in 60 days
Traditional Factoring
Traditional factoring uses the number of days the invoice is open to divide up the factoring rates. These rates are just samples, and differ for each factoring company.
$10,000– Sell a $10,000 invoice to the factoring company
1%- A 1% factoring fee for the next 10 days of an open invoice
3%- A 3% factoring fee for the first 30 days of an open invoice
1%- A 1% factoring fee for the final 5 days of an open invoice
total fee=%500
Flat Rate Factoring
A flat factoring rate is one that is set no matter how many days it takes your customers to pay. There are limits depending on the factoring company you work with.
Example of a 60 day invoice:
$10,000
Sell a $10,000 invoice to the factoring company
3%- A 3% factoring fee will be issued for a payment anytime between 0-60 days. If it takes more than 60 days to pay then there will be additional fees.
Both traditional and flat factoring rates work differently for each business. The payment terms your customers have will determine which option is best. The factoring company you work with will be able to guide you while planning your factoring plan.
Contact the Factoring Marketplace to get partnered with a factoring company that understands your industry and needs: www.factoringcompanies.com or 855-465-8870
