Invoice factoring explanation plus#

However, this fee doesn’t apply to every single invoice, but to the entire amount you receive, usually a combination of several cash advances and rebates.

Wire fees: expect this to be about $25, charged when cash from your reserve account is wired to your bank account.

Account initiation fee: you’ll pay this just once for the factor to evaluate the original debtor’s credit background.

These are different across factoring companies, but here are some common operational fees: While the second option sounds complicated, it amounts to a similar fee to that of a plain flat discount.

Invoice factoring explanation plus#

1% plus Prime (currently about 5% annual) +0.5 If a factoring company says they have only one fee, it probably means the administrative fees are tied into their factoring rates.įactoring companies generally use one of the following rate structures to calculate factoring fees: Flat DiscountĮ.g. Factoring fees dependent upon the invoice value.While factoring companies may operate differently from one another, most of them will charge you two kinds of fees: Keep in mind that when your customer pays the invoice, you’ll also get the remainder minus the agreed upon factoring fees. So if your rate is 80% and you factor an invoice worth $2000, you’ll get $1,600.

The invoice value multiplied by the advance rate equals the amount you’ll get initially. The advance rate is usually between 75 and 90% of the invoice value. How Much Cash Will You Initially Receive? The factoring company takes $30 as a fee, subtracts the $800 already given to you and wires the remaining $170 (aka rebate) back to your company’s bank account.The factor takes the payment and puts it into a reserve account.On the 74th day, your debtor pays the invoice, which gets deposited into a bank account opened by the factoring company under your company’s name.The factoring company purchases your invoice and provides an $800 cash advance.Your company then agrees to the following terms with a factoring company:.

Your business sells and delivers product XYZ to Wholesale Inc., issues an invoice for $1,000 and gives the debtor 60 days to pay.