What Are Invoice Finance Rates And Fees? How Much Does It Cost?
Continued cash flow helps a business survive. In reality, most businesses constantly struggle to meet their operational expenses, while groaning under the weight of accounts payable and delays in accounts receivable. In such a scenario, invoice factoring has emerged as an excellent solution that gives the business immediate access to cash, without the shadow of debt.
With invoice factoring, the business is not at the mercy of banks and their tough procedures, or lenders who expect a share of the business.
What, then, is the cost of invoice factoring? What are the finance rates and fees?
But first, let us look at the cost of not factoring.
By not factoring, you would be denied of the advantages of better cash flow for your business. By not factoring, you would not receive your payments against invoices raised within 24-48 hours, or be able to pay your suppliers and take advantage of early payment discounts. If you do not factor, you will not be able to fulfill your next major order, taking care of labor payments without taxing your line of credit at your bank. In fact, worst of all, you will not be able to offer better credit terms to large clients to get more business.
Whereas, by factoring, you can do all of the above without getting into debt. The financial benefits of factoring are significant enough to result in big savings. The money you save by factoring can easily make up for the costs and rates of factoring.
When a business needs cash quickly in order to grow or survive, factoring is the best business decision it can make.
Lengthy billing cycles can easily restrict cash flow, resulting in the business trying to juggle accounts receivables and payments to suppliers. A lot of time is wasted in chasing payments, while facing a situation where the bank will not fund you for a variety of reasons. Because of slow cash flow, new business has to be lost. In such a challenging position, factoring your invoices is the answer.
Invoice Factoring Fees – “I have seen rates as low as 0.1% of an invoice all the way to 20% of an invoice.”
When you decide to go in for invoice factoring, your discount fees will depend on your customers’ creditworthiness and not the credit worthiness of your business.
Against your accounts receivables, you will receive about 70-90% of your invoices’ face value. At the time of collecting the full payment from your client, the factor pays you the balance, after deducting their factoring fee or discount rate. This fee will vary according to the invoice value you decide to factor each month.
Thus, invoice factoring costs are quite flexible and you have complete control over how much to factor, based on your cash needs.
By using factoring, you can take advantage of supplier discounts, while improving your credit rating and of course, cash flow – all without getting into debt since factoring is not a loan.
This will result in increased profits and growth. You will also be able to offer your customers better terms of payments instead of negotiating price to be competitive. Best of all, the cost of factoring will be built into your operational costs while enabling you to raise cash to invest in:
• capital equipment for business expansion
• inventory for quick deliveries
• marketing for more business
You can also easily take care of payroll, taxes and enjoy trade discounts. Savings payment follow ups alone will offset your factoring costs. What better way to manage your accounts receivables than with factoring which puts money where it belongs – in your hands.