Cost To Factor Your Accounts Receivable
What will it cost me to Factor my Accounts Receivable?
Unlike a business loan which involves a monthly payment based upon an annualized interest rate, factoring is priced per transaction. In a factoring transaction, a business sells its invoices to BUSINESS FINANCE CORPORATION, an accounts receivable financing company, at an agreed upon discount from the face amount of the invoice. Typical factoring discounts range from 2%-5% for 30 days. At BUSINESS FINANCE CORPORATION, an invoice that is not paid in 30 days will accrue daily fees at 1/30th of the factoring rate per day. For instance, if your factoring discount rate is 3½%, and the invoice does not pay in 30 days from the date you sold the invoice, the daily fee would be 1/30th of 3 ½ % or .1167% per day. On a $1,000.00 invoice the amount would be $1.17 per day.
The factoring discount rate is determined by a number of variables such as the type of business you are in, (for example: construction is more expensive than manufacturing) the number of monthly invoices to be factored, the dollar amount of each invoice, the credit quality of your clients & their payment history, as well as other credit risks. In addition to the per transaction discount rate, BUSINESS FINANCE CORPORATION may charge an additional monthly fee on accounts that require specialized services or customized financing.