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The key to knowing if factoring is
for you is to not to look only at the
bottom-line factoring fee,
but also to consider how your company
may increase it's profits through factoring.
Here is additional information on factoring
to help you with your decision.
How Are Invoice Factoring Fees
and Advance Rates Determined?
It is based on several factors:
The creditworthiness of your clients.
Your monthly billing volume.
Average invoice size.
Average days to payment.
Fees can range from 2% to 5% of
the invoice's face value.
For example if the invoice's value
is $1,000; a fee of 3% equals $30.
What Is An Advance?
The amount of money you
when we buy your invoice.
The balance is returned to you when
your customer pays the invoice.
Advances range from 60-90%
of the invoice's face value.
For example if the invoice's value is
$1,000 an advance rate of 80% equals $800.
The balance of $200 less the
factoring fee is returned to you when your
customer pays the invoice.
Comparing Bank Lending Rates to Factoring?
When compared to bank lending rates, factoring
initially appears to be very expensive.
Here are five typical questions/concerns
that are raised by potential factoring clients
Wow! 3 points per month! That's 36 percent year! (Rates range from 2 to 5 points)
It is tempting to annualize the numbers, but that is an "apples and oranges" comparison.
Banks loan money at an annualized interest rate, 12 percent per year for example. Factoring purchases your
receivables at a discount. The products are different and there are other inconsistencies to
this inappropriate comparison.
The bank provides the money only one time, the day that you receive the loan; factoring
provide money continuously. As an example, consider a bank loan for $100,000 at 12 percent.
You receive the $100,000 just one time and then pay $1,000 interest per month and you
still owe the $100,000.
Or the bank could provide you with a line of credit that you use only
when you need the money but the bank is charging you for that privilege and if you need to
increase your line you need to go through the qualifying process all over again.
When you factor $100,000 each month for a year you have the use of $1.2 million (12 x $100,000)
over the year. Unlike a bank loan where you have just $100,000 one time. Assuming a 3 point
discount, the fees over the year will be 12 x $3,000 or $36,000, which is still 3 percent of
$1.2 million. And at the end of the year you have no debt!
I'm Only Making 3% Profit, How Can I Pay 3 Points?
A company making only 3% net profit can do more business volume as a result of factoring, and
the larger volume will result in a higher profit margin because fixed costs do not increase
with volume. The added business at a higher marginal profit leads to an increased overall
As the volume increases, the cost of production decreases, so that profits
increase. Fixed costs i.e., rent, electric, insurance, etc., increase very little or not at
all with volume. An increase in business will not affect rent. Electric bills may rise
slightly. Workers compensation insurance may rise slightly. These costs do not increase as
do direct production costs.
Let's Do The Math Assuming You Can Double Your Sales
Monthly Gross Sales $50,000
Cost of Goods Sold $30,000 60% of Gross Sales
Monthly Gross Profit $20,000 40% of Gross Sales
Fixed Expenses $10,000
Variable Expenses $8,500 17% of Gross sales
Factoring Fee N/A
Total Expenses $18,500 37% of Gross Sales
Monthly Net Profit $1,500 3% of Gross Sales
Monthly Gross Sales $100,000
Cost of Goods Sold $60,000 60% of Gross Sales
Monthly Gross Profit $40,000 40% of Gross Sales
Fixed Expenses $10,000
Variable Expenses $17,000 17% of Gross Sales
Factoring Fee $3,000 3% Fee
Total Expenses $30,000 30% of Gross Sales
Monthly Net Profit $10,000 10% of Gross Sales
But I Only Get 80% Of My Money Upfront!
Advances typically range from 80%-95%!
Let's assume an advance rate of 80%. Let's also assume that you begin factoring in January.
You have factored $100,000, we pay you $80,000 of that money upfront, with the remaining money
making up the fee (3%) of $3,000 and the reserve (17%) of $17,000.
Now in February, you once again factor $100,000 and receive $80,000. However. you also receive
your January reserve of $17,000(assuming your customer pay in 30 days). So for February, you
actually receive 97% of your money, instead of 80%.
In the second month and going forward you are basically receiving 97% of your cash flow.
But what if my customers take longer than 30 days to pay?
You have several options, Assume your client takes 60 days to pay you bill your client in the
normal fashion and simply allow 30 days to go by prior to factoring that invoice. That way you
pay the 30 day fee. Another way is to factor your faster customers first for the cash you need.
Factoring for Hundreds of Industries: including
factoring for Health Care Staffing, Tansportation,
Trucking, Manufacturing, Labor Staffing, Doctors,
and many more industries.
Up to 95% Invoice Factoring Advance Rates:
Advance rates are based on overall risk
associated with a particular industry
as well as experience and track record.
We hold reserve accounts to accommodate
industries which typically experience
dilution and that we would otherwise
not be able to service.
Advance Rates Range 80% to 95% Of Gross Invoice Amount!
Invoice Factoring Fee Structures:
Fees are determined based on
your industry, the credit worthiness
of your customers, how quickly
your invoices turn, and
monthly factoring volume.
GET YOUR CASH TODAY
Call For Factoring Information Today at 904-551-6090