Understanding Invoice Factoring Rates

Nowadays, it is difficult for businesses to get a significant amount of credit from banks, especially in today’s lending climate. To compound this effect, companies offering invoice factoring services provide businesses with a reasonable alternative to banks. They grant you immediate access to cash, which enables you to pay employees and use the money to carry out other expenses.

What is Invoice Factoring?

Invoice factoring is a financial solution that offers advance funds to a business as it issues new invoices. Instead of having to wait for the customer to pay for a service or good that has already been provided, an invoice factoring service can purchase the outstanding invoice and provide up to a 90% advance of that invoice. This provides business owners with the peace of mind to focus on other important business related issues all the while knowing that the cash flow of their company is secure.

What are the Invoice Factoring Rates?

Invoice factoring rates vary depending on the type of factoring company. That being said, the invoice factoring rates start as low as 0.05% and increase accordingly to the needs and particular situation of the business that requires the service. To try and simplify the process even further, the following are a few ways in which factoring companies decide on their invoice factoring rates.

  • Annual Sales Volume and payment terms
  • Average Invoice Size and credit worthiness of the client
  • Domestic or International
  • Charges vary depending on the invoice’s age
  • Whether the agreement is recourse or non recourse

The Benefits

Invoice factoring rates can be flexible and negotiated around how a particular business operates. This is why many businesses prefer using invoice factoring as a dependable, reliable, and highly effective business solution. And the benefits don’t just stop there. When one hires the services of a factoring company, one is able to lower overhead and company costs, which in turn, increases the earnings of a business.

Ending Note

It is no secret that businesses both large and small need a continued cash flow in order for them to survive; this becomes even more important when the business needs access to money for making necessary payments. The reality is that businesses constantly struggle in order to meet their operational expenses, while under the weight of the accounts payable and the delays of the accounts receivable.

In such a scenario, invoice factoring has emerged as an excellent solution for many different types of businesses to get immediate access to cash. By using invoice factoring, a business is not at the mercy of having to take out loans from the bank and pay high fees. To get the whole picture of invoice factoring, businesses should ask the proposing factoring company to provide them with some examples of the invoice factoring rates using amounts, balances, and payment terms of businesses that are similar to theirs.