Simply put recourse factoring would be if your customer fails to pay the invoice then the factoring company then bills you back for that amount. The main two structures that you hear about in how factoring companies charge are that of recourse factoring and non-recourse factoring. For example, your customer pays the factor in 38 days and they have 7 clearance days, that check will post to your account on day 45, possibly increasing your aging fee. Your factoring company may have 7 days of clearance, which means 7 days after they receive the check they apply it to your account. You will also want to note the “clearance days” for checks. The longer your customer takes to pay, the more you pay in “aging fees”. This will increase your cost with the factoring company.
COST OF INVOICE FACTORING FULL
When a factor does not advance the full amount there is a good likelihood there will be aging fees in the contract. One such thing would be the aging of invoices. These are important to keep in mind because they can affect the overall invoice value. There are some things, however, that can impact your overall factoring cost with additional fees beyond just the rate. The factoring process can seem very cut and dry with a flat fee. Every day, we receive phone calls from actual clients like “John Trucker”, who signed with a factoring company because of a great rate, only to realize he was paying much more. In fact, our sales team will even walk you through our factoring agreement and give you a chance to ask questions. We are transparent and upfront with the true cost of factoring, even sending a summary statement that breaks down all the costs after every transaction. With TAFS, you work with a factoring partner who believes in keeping costs low and straightforward.
The next time you are comparing factors, ask questions to find the TRUE COST of their program.
Sometimes this rate only remains good if the invoice pays within a very short amount of time, then jumps up before your customer pays within their standard terms. No one likes wasting money on fees.ĭon’t fall victim to the “teaser” lower rates. Soon he will be running himself ragged simply to keep his business going. This does not include the same-day advance fee, setup costs, required reserves, ELD transaction fees, or aging fees. Now he’ll only receive $960 for his invoice, turning that 2% rate into 4%. But did he remember to ask about their factoring fee structure before signing up? Does he even understand the payment terms? ABC Factoring charges a $5 invoice submission fee and a $15 invoice processing fee. If “John Trucker” has a $1,000 invoice and sells it to ABC Factoring at a 2% rate, you would expect to receive $980 for the invoice. At the end of the day, the whole reason you are factoring is to improve your cash flow. Taking this into consideration can make a big difference for small business owners. You want to look at the additional fees such as per invoice fees, high aging fees, setup costs, minimums, etc.
Comparing rates is not as important as actually reviewing the total factoring COSTS of selling your invoice vs the value of the invoice. You need to make sure you understand the true workings of the company that you are putting in charge of your accounts receivable. When deciding between invoice factoring companies, don’t take companies at face value and get caught up in the marketing lure of who the best factoring company is. Before you rush into signing up for factoring services with the first company you find, let’s cover some of the things you want to look for. Do you have unpaid invoices that you need to turn into working capital? A factoring company can help but this is not as cut and dry as a cash advance.
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