![]() These fees may be negotiable in the initial contract with the factor and can vary from one factor to another. The fees in a factoring agreement are based upon variables such as the credit quality of your clients and the size of their invoices. Once the invoice is paid, the factor will pay the balance agreed upon, minus any fees. Payments are generally advanced within one to three days, and the factor will then collect the total value of the invoices from your client. In addition to the discounted purchase price for your invoices, you should expect to pay fees that could range from two percent to 4.5 percent of the total invoice amount for every 30 days the invoice is unpaid after factoring. You should expect the factor will likely offer to pay you 85 percent to 90 percent of the face amount of your invoices and advance a percentage of that amount, depending upon the creditworthiness of your clients and other factors. There is no standard factoring arrangement, so be prepared to negotiate with your factor. If deemed acceptable, the factor will negotiate with you to purchase your invoices. Once you choose a factor, they will likely review your client base to determine the creditworthiness of your clients and review your previous invoices and how successful you have been at collecting those invoices. There are also factors that specialize in other industries, so it makes sense to ask when looking for a factor. As a result, some factors specialize in that industry. Factoring is a preferred way of financing within the textile industry, for example. Most factors target specific businesses based upon their volume and the amount of their invoices. ![]() There are many independent factoring companies (including online factoring companies) along with many banks that offer factoring services. The factor profits from the difference between the discounted rate negotiated to buy the receivables, and the full amount collected from the customer. The factor then “owns” the outstanding invoices and collects from the customers. ![]() It is better described as an advance on accounts receivable.Ī “factor” is a third party that purchases part or all of a company’s accounts receivables at a discount. To determine whether or not factoring is the right approach to meet your business needs, it makes sense to understand what factoring is and how it works. ![]() Although factoring has been around for thousands of years (for example, medieval businessmen and English colonists all used factoring), online invoice factors have made it more accessible to many small businesses looking for quick and simple access to capital to meet business needs. ![]()
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