Accounts Receivable Factoring Rates
How Much Would It Cost You?
Accounts receivable factoring rates are fairly simple to comprehend, but you must know the different factors that can influence the rate you pay a factoring company.
For example, the number of invoices involved in factoring can make a big difference in the factoring company’s workload.
The more invoices they have to handle, the more time it takes, the more they will charge you in fees.
One way to lessen that fee is to send higher dollar amount invoices instead and keep the lower ones with your business.
For example, if you had 10 customers who all owed you money, and 2 of those 10 owed you $5,000 each which the other 8 owed you $500 each, you might want to factor the 2 larger accounts and not the 8.
Of course you are likely going to have hundreds if not thousands of invoices, but this example explains the basic premise.
Progressive Vs. Non Progressive Billing Also Impact Accounts Receivable Factoring Rates
Billing is one of the accounts receivable factoring services that you have to pay for. The type of billing that the factoring company engages in also makes a big difference.
If the company bills you on an ongoing basis, called progressive factoring, you will likely pay a higher fee than if the company billed you once at the end of the month.
This is something you can talk to the company about in advance and use their preferred method in exchange for a lower fee (if they agree of course).
Go the “Non-progressive billing” route if you have this option. In a non progressive billing practice, the factoring company invoices you or your clients only once, and therefore this way of billing is much less taxing and expensive for the factoring company.
Of course you cannot go with this billing if your customers are paying you installments on an ongoing basis.
If your customers are on installments, you will have to agree to a progressive billing structure, which requires more time, effort and resources. This also requires more ongoing interaction between you and the accounts receivable factoring company.
Account Setup Costs
Setting up a new account for accounts receivable factoring companies also takes time, resources and effort. Setting up an account involves credit report reviews, reference checks, evaluation of your business and clients.
Most factoring companies will charge you (the business) an account set up fee to process your application. These fees typically range from $400 all the way to a couple thousand dollars. Relative to the benefit you will get from factoring, these numbers sound relatively cheap! Trust me on that!
Concluding Thoughts on Accounts Receivable Factoring Rates
I know the accounts receivable factoring costs and rates involved may seem steep, but trust me, they are really NOT. Business accounts receivable factoring is no joke, and can mean significant returns for your business if used correctly.
I was able to grow and expand my business to multiple locations in just two years, I am sure accounts receivable factoring can do the same for you too.