There is a lot of misinformation online about the costs of factoring. For most small to large sized businesses the accounts receivable factoring fees are much lower than the fees involved in a small business loan or more traditional type of funding option.
Additionally, and this is important to keep in mind, the accounts receivable factoring fees are not going to carry forward into the future. They are simply deducted from the 20% withheld by the factor, meaning no repayment plan, no interest and no closing costs or other administrative fees found with loans and lines of credit.
Costs to Consider
While many factors will charge a long list of accounts receivable factoring fees, there are a few companies that do not. They will not charge an application fee, termination fee or a fee for due diligence. Customers that pay early or on time are the ideal invoices to factor, ensuring you pay the lowest rate from the factor for their service.
Instead, you will pay a rate on the amount that is factored, or the total value of the invoices. At the same time, you will have no additional costs for collection or invoice processing, plus your staff can focus in on your business rather than on managing old accounts. Additionally, if you have been offering early repayment discounts to your customers, this will no longer be a deduction from the amount you receive, allowing you to know just what you can expect.
Factoring provides an additional cost saving in the timely availability of cash after the application. Typically, you will have the funding in days rather than weeks, allowing a small business owner to immediately address cash flow issues. This means making payroll, taking advantage of early payment bonuses from suppliers or even getting the inventory and equipment to take on new business.
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