|
|
|
 Depends on Volume
The cost of factoring can vary widely and mostly depends on how long it takes for your customers to pay. If it takes 60 days, the cost of factoring will double, compared to 30 days. Beyond that, the cost mostly depends on the volume and the average size of the invoices factored. Factoring higher volumes of larger invoices on a steady basis will qualify you for better pricing than lower amounts on an irregular basis.
|
|
|
About the Discount
The fee lenders charge for the use of money is called interest. In contrast, the fee factors charge is called a discount. The discount is based on the face value of the invoice sold. The basic rate for factoring is a discount of 1/10 of 1% per day. This translates to 1% for 10 days, or 3% per month. Most factoring transactions are closed out within two months at an average discount of 5%. Thus, the discounted sale price for a $1,000 invoice after 50 days would be $950. Like factoring, when a business accepts a credit card as payment, they agree to a discount on a sale, in order to get paid immediately.
|
|
|
Weigh Cost Against Benefits
You need to weigh the cost of factoring against the potential benefits. Only you can determine whether the benefits are worth the cost. Factoring can help a business survive and grow. Factoring improves cash flow by freeing up some of the money you have locked up in receivables. As the economy improves and sales pick up, factoring can help finance the cost of your sales. Unlike fixed overhead or debt, factoring is a variable cost, which is tied directly to sales. Despite the relatively high cost, whenever you can use factoring to increase sales and profits---it doesn't cost---it pays!
Your situation is unique. To find out if factoring is worthwhile call us today at 541-484-7044.
|
|
|
|
