What Are Invoice Factoring Rates?

What Are Invoice Factoring Rates?

A Little Background…

Before we discuss invoice factoring rates, let’s do a recap on accounts receivable factoring.

Banks, as stable as they may seem from the outside are a finicky and fickle bunch when it comes to lending to businesses that want to generate capital. And loans might not even be something that your business would need in the first place. Unfortunately, one of the oldest and more reliable practices in business hasn’t gotten the PR it deserves to present itself as a much better and more viable option for small businesses looking to generate capital more quickly.

The process is simple. You make a sell and once you get the invoice (accounts receivable), you can turn that into the factoring company for an immediate discounted payment. That’s it. The customer pays the factoring company in time, and you, the business, get the payment immediately from the factoring company. The “maybes” are reduced dramatically, unlike with loans where a business MIGHT have the money in the future to pay off the loan.

The big question is, what does it cost?

The term in the factoring world for the discount, or amount removed from the invoice payment, is the invoice factoring rate. These can be all over the place, sometimes as much as 15%, but like most things in business, that depends on many factors (pun intended).

First, invoice factoring rates can be lower if a customer pays off the invoice fee more quickly. This of course is the most streamlined and lucrative option for businesses. Reliable customers in their payments are a plus too. Usually with an average payment time of 30 days will lead to an invoice factoring rate of something between 1 and 5%. The rest goes to the business as if the capital was immediately gained upon creation of the invoice.

The big positive for businesses in the factoring process is that they can buy time and make more sales and spend that capital in places where they need it to grow. Time is everything in the early stages of a businesses life, and factoring is like putting it on steroids without all the negative effects.

Fill out the web form to the right today and look at the different options for payment and which invoice factoring rate you can receive with the kind of business you run. Great businesses aren’t created out of nothing, and they certainly don’t stay alive without smart decisions with capital and how a business uses its time and money.