How are costs and advance rates for selling invoices set?
They're based on a few things:
Costs usually range from 2-5% of the invoice's total.
So, if your invoice is for $1,000, a 3% cost would be $30.
What's an advance?
That's the money you get right away when we buy your invoice. Once your customer pays, you get the rest. Advances usually range from 60-95% of the invoice's total.
So, if your invoice is for $1,000, an 80% advance would give you $800 right away. When your customer pays, you get the remaining $200 minus the cost of factoring.
How does selling invoices compare to a bank loan?
At first glance, selling invoices can seem a lot more expensive than a bank loan. Here are some common questions and concerns you might have.
Wow! 3% per month!
That adds up to 36% per year! (Rates range from 1.5-3% per month) It might be tempting to think of it this way, but that's like comparing apples to oranges. Banks charge yearly interest on a loan, like 12% per year, for example. We're buying your invoices at a discount. They're not the same thing, and there are some key differences to keep in mind.
A bank gives you money once, when you take out the loan. We give you money on an ongoing basis. Consider a $100,000 bank loan at 12% interest. You get the $100,000 once, and then you owe $1,000 in interest each month, plus you still owe the original $100,000. A bank might give you a line of credit, but they still charge you for it and if you want more credit, you have to go through the whole approval process again.
On the other hand, if you sell us $100,000 in invoices every month for a year, you've used $1.2 million (12 x $100,000) over the year, not just $100,000 one time. The costs for that year would be 12 x $3,000 or $36,000, which is still only 3% of $1.2 million. And at the end of the year, you don't owe anything!
My profit is only 3%, how can I afford to pay you 3%?
A business that's making a 3% profit could do more business by selling their invoices, and doing more business could raise their profit margin. That's because the cost of doing business doesn't always go up when you do more business. So, more business could mean more profits. Rent, electricity, insurance, and other fixed costs might not increase much, if at all.
Let's crunch the numbers to see what might happen if you double your sales Without Selling Invoices
Monthly Sales-$50,000
Cost of Goods Sold-$30,000 60% of Sales
Monthly Profit-$20,000-40% of Sales
Fixed Expenses-$10,000
Variable Expenses-$8,500-17% of Sales
Invoice Selling Cost-None
Total Expenses-$18,500-37% of Sales
Monthly Net Profit-$1,500-3% of Sales
With Selling Invoices
Monthly Sales-$100,000
Cost of Goods Sold-$60,000-60% of Sales
Monthly Profit-$40,000-40% of Sales
Fixed Expenses-$10,000
Variable Expenses-$17,000-17% of Sales
Invoice Selling Cost-$3,000-3% Fee
Total Expenses-$30,000-30% of Sales
Monthly Net Profit-$10,000-10% of Sales
But I only get 80% of my money right away!
(Advances usually range from 80%-97%) Let's say we advance you 80% to start. So, in January you sell us $100,000 in invoices and get $80,000 right away. The rest covers our fee (3%) of $3,000 and the reserve (17%) of $17,000.
In February, you sell us another $100,000 in invoices and get another $80,000. But, you also get your January reserve of $17,000 (assuming your customers pay in 30 days). So, in February, you actually get 97% of your money, not 80%. From the second month on, you're basically getting 97% of your money.
What if my customers take more than 30 days to pay?
You have options. You could wait 30 days before selling the invoice, so you only pay for 30 days of factoring. Or, you could sell the invoices of your fastest-paying customers first to get the cash you need.
We relieve your headaches and stress of collecting on accounts receivables.
You have 24/7 account access 365 days a year.
When you call, you get to speak to a real live person.
Don't wait long periods for a loan. Many of our factoring deals can take place in as little as 24 to 48 hours. If you need capital right now or are looking to expand then factoring is the way to go. We work on your time instead of you working on a bank's schedule.
If you need cash and you're sitting on a lot of unpaid invoices then factoring with us is the way to go. We'll give you the cash that your business needs and collect from your customers.
Debt is risky while at the same time being beneficial to growing a business. Start-ups can relieve themselves of the risk of debt and still create capital with factoring.
If you're a start-up or your business has a poor history or credit then you can still get the cash that you need. Today's banking atmosphere makes it a challenge for even the most-qualified businesses to get a loan. Factoring takes care of all of that.
Without a collections department or a small staff, collections often come down to you doing all of the leg work. Our Factoring Service will alleviate that burden and provide the service that you're not equipped to handle.