To factor or not to factor? That is the question on account receivable factoring.
Understanding the cost of factoring fees, hidden expenses and what you’ll really be paying.
Cash flow problems are some of the biggest hurdles that growing businesses face. One helpful solution to a cash flow issue is factoring, which has emerged as a flexible alternative to banks when businesses need faster and easier access to cash. So what does factoring cost?
Need a refresher before jumping into the cost of doing business and how factoring help? Take a quick review of the essentials of this solution here.
What’s in a name?: Invoice factoring fees explained
A number of different elements will impact the factoring rate that a given business receives, but generally speaking the rate tends to vary from 1% to 5% per 30 days. Some elements that influence this rate include:
- Invoice volume
- Quality and creditworthiness of your customer
- Days outstanding on invoices
- Industry
Advances usually range from 70% to 90%. The difference between your costs, the rate and the advance will also determine how much more money you will receive once the invoice is paid.
All that glitters is not gold: Hidden fees and how to avoid them
It’s also important to find out about any other fees that will come with factoring, especially since these vary from company-to-company. Some of the common ‘extras’ that companies can charge for include:
- Reviewing your application
- Setting up the account
- Bank transfers
- Phone calls and consultations
Fortunately, all reputable companies will be transparent with their fees from the beginning so that you can avoid any unpleasant surprises. Avoid any factor that can’t tell you what a fee will be or why it is being charged.
3 essential questions to ask a factor
There are useful questions that you can ask any potential invoice factoring partner include:
- How long have you been in business?
- What industries do you serve?
- Can I pick and choose invoices or customers, or do I have to factor everything?
The answers to these questions will help you assess whether or not the factoring partner is the right fit for your business. But there are plenty more questions you need to be asking…
Learn exactly what to ask and the answers you should uncover before you sign an agreement. Access “The invoice factoring guidebook” now.
