Price of Factoring

So, what exactly is the cost of factoring?  Although this is a fairly straight-forward question, there is actually many answers to it.  The exact price of factoring depends on the company that you are working with.  However, it is still possible to get a general idea of how much factoring will cost your company if you choose to use it to help increase your company's cash flow.

For the majority of financing companies that offer factoring, the only charge they make is a service fee for each account receivable or invoice that they purchase from you.  Initially, depending on the specific company that you are doing business with, your accounts receivable and invoices will be purchased for seventy to ninety-five percent of their face value.  You will then receive that percentage of your account receivable or invoice without paying the factor any of your own money.

After the customer pays their invoice (which can be anywhere from thirty to ninety days after it was originally issued), the factor will take their service fee out of this payment.  This fee is normally calculated as a percentage of the payment.  Depending on the company, the price of factoring can be one to five percent of the original invoice, but in most cases it will fall in the three to five percent range.

When the factor is calculating what percentage of the invoice their service fee will be, they take several things into consideration.  For example, if you have a large volume of higher value invoices, your factor will probably give you a lower rate.  Additionally, the industry and customer base you have can influence the factor price that you are charged.  Companies in low risk industries with credit-worthy customers will obviously receive a better rate than a high-risk company that has customers with lower credit ratings.

Although researching and talking to potential factors is the only way to find out the exact price of factoring for your company, the information above will help ensure that you can negotiate for the best rate possible.