APR vs Discount Fee’s

Every now and then we get a business owner looking for the difference between APR (Annualized PERCENTAGE RATES) and Factoring Discount fees.
APR vs Discount Fee’s
As an analyst these questions can still confuse me. Business owners juggle many different financial tasks and terms. However there is a huge difference between factoring discount fees and annualized percentage rates.

The difference is complicated:

– Annualized percentage rates are dependent on a businesses risk over the year.

-Factoring discounts fee’s lower the risk to net 90 terms at the most.

*keep in mind if you try and compare an annualized rate with a short term rate(factoring discount fee), you must ALSO compare a company that can qualify for a long term loan and one that cannot. Those two companies are not the same, neither is the cost of funds.

Above is the definition, and as you can see trying to compare the two is like saying ducks and eagles are the same because they both fly. I say this because if you attempt to multiple a 30-day invoice fee by 12 you will not get a accurate number of the annualized percentage rate.

For example: When a factoring company funds your  30-day invoice with net 90-day terms, your invoice will be repaid between 25-45 days on average. This means the risk of the outstanding invoice is only over a short period of time.

This short term reflects the risk your company brings into the equation. Factoring companies accept this risk and offer a factoring discount fee.

On the other hand a bank will make a loan that they expect will be paid over a year or more, because they make calculations whether or not your business will be better over a period of time. If banks see any risks that your business cannot pay back the loan, the you get no loan!

Factoring companies will give your business funds within 24 hours to 3 days. Their lending is dependent on the creditworthiness of your customers.

Hope this helped
Chirs L.

How To Select The Right Factoring Company

There are many variables besides just the “lowest” discount fee that will come into play when selecting the factoring company best suited to your company’s needs. This Article has the important things you should look for when picking a factoring company:
pick the right factoring company

You can find several key attributes you should search for before picking the right factoring company for your business. A reliable factoring company should have a high quality credit department, a professional collection staff, a long history, financial strength, and current systems for keeping their customers informed with real time information.


In contrast to a standard bank or perhaps a finance company, factoring companies have a day-in, day-out relationships with regards to their clients, so selecting the right factoring company boils down to who can you see your business aligned with?

Generally, the response for this question is most likely the factoring company with the lowest discount fee and quite often it is the factoring company that fits various other needs better than the comapany with the lowest fee. In the end, determining the overall cost can prove difficult, so you may want to consider additional critical variables. Heres points to consider in order to pick the most suitable factoring company for you:

Does the factoring company have a fully staffed credit department?
Any factoring company that has a good credit department, could be your choice if you’re searching for a factoring company which will help you make prudent credit limits for your customers. A factoring company which does not have a fully staffed credit department is likely to not approve ideal credit limits and because of this, may expose your company to incorrect levels of risk. However, a factoring company in which does not approve enough credit to have capacity for your needs might entirely restrain your companies capacity to grow.

Does the factoring company have a collection department?
You just might pick a factoring company with a fully-staffed collection department.Why? Because It might stun you to know that a large number of factoring companies don’t have a collection department. For anyone who is considering choosing a factoring company which takes their duty of collecting receivables seriously, the factoring company will assign your business with two contacts: an account representative + a collection specialist.

This is important because factoring companies WITHOUT a collection department are forced to assign the task of collections to one account representative.

Does the factoring company have a good track-record?
A factoring company in which has been in business greater than ten years likely comes with the expertise needed to supply an quality level of service. A factoring company that’s endured various business cycles demonstrates effectiveness. However If in doubt, ask the factoring company you’re talking to for bank references or information about their financial shape. Most of all, ask your factoring company for client testimonials if possible customers that are in your industry.

Does the factoring company have a specialist in your industry?
You most likely are searching for a factoring company that knows your industry. Industry specialists are extremely vital. If you happen to run a staffing company, you should seek out a factoring company with staffing specialists. For instance a staffing factoring company will be familiar with your regulations and payroll needs and provide unique services such as payroll checks, payroll deposits, payroll reporting, payroll software, invoicing and invoice mailing. since, a staffing factoring company will certainly have their own first hand experience in dealing with hundreds of other staffing companies. If a staffing factoring company already knows your customers, you will save money because you will not need to spend money on credit reports.

Is the factoring company the best size for your company?
Perhaps you may be interested in a large or small factoring company, based upon your philosophy. Your best bet could be a factoring company that is somewhere in between small enough to provide personalised service and the means to access top management, then again large enough to deliver financial stability, the capacity to accommodate your needs, as well as the skill to survive challenging economic times.

Continue reading How To Select The Right Factoring Company

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Factoring VS Bank Loans

Just about the most common statement I hear individuals make is that factoring is far more expensive than a loan from the bank. This comparison is like comparing apples & oranges but most business owners still believe it. The reason is because factoring is a financial tool that few business owners fully understand.

banking vs factoring

First, lets make it clear that when a company can qualify for sufficient financing from a traditional bank and that is the very best financial option for the business then factoring need not to be considered.

However if a company is unable to obtain adequate financing from a bank then factoring may be a better option for small businesses.

first- Factoring is not debt financing, you don’t receive money like you will from a traditional bank. A factoring company actually purchases the invoice from your business, therefore the invoice is an asset you’re selling. These invoices must be purchased at a discount so it should not be compared to an interest rate from a line of credit.

2nd- Turnaround time for authorization for funding from your traditional bank is often longer than 2 months with alot of unnecessary pain and paperwork. Your banker has to get approvals and the underwriting team has many hurdles for you to jump over in order to get funded. With factoring you can get an account and get funded in as fast as a week and then on future invoices you can receive funding in 24 hours. Plus if you acquire additional customers the factoring company will fund you for them in 24 hours.

third- A traditional bank generally needs to see a minimum of 2 years of financial for your business as well as requires you to have collateral together with your invoices EVEN a personal guarantee. On the other hand, A factoring company can provide funding to start-up companies so long as their customers are creditworthy and all that is required is the accounts receivable and many factoring companies don’t demand a personal guarantee.

fourth- A factoring company in addition offers even more services. As opposed to a traditional bank, a factoring company constantly monitors your accounts receivable and collections. They offer credit screening for potential new clients for your company and they provide up to date aging reports to help you in getting a better handle on your receivables aging. A factoring company is also constantly advancing new funds as well as collecting outstanding invoices and your credit facility continues to grow with your new accounts.

To sum it up the big issue is not if factoring is more costly than a bank loan, because it is obvious that the two cannot be compared. As a business owner you should consider advantages of factoring vs. a bank loan.

With factoring you never be worried about out-growing your credit line or quickly spend your loan and get into debt with the bank. With factoring you can get additional capital easily when needed so your credit line grows as your business grows.

Plus if you are unable to meet orders due to insufficient working capital, then factoring offers you the cash-flow needed to complete the order. If you find your business in this situation give us a call 1-888-382-3766 or visit us online by clicking here.

Factoring Websites Claim Unreal 1% rates?

 A quick online search shows that you will find a number of factoring companies that offer what appears to be very cheap factoring rates. Based upon what you search online, you will find claims saying you can factor your invoices for only 1%. Sometimes, the rates are even lower. How can this be? And in some advertised websites, the rates appear to be cheaper than traditional bank financing.
cheap factoring rates
Just how can factoring be cheaper compared to a conventional business loan that’s only reserved for prime customers with plenty of assets?

Let us explain this for you:

The key is to recognize how nearly all factoring rates work. Even though the rates might seem to be cheaper than bank financing, often they will not be.

Why?

Well first we need to evaluate how factoring fees are commonly evaluated. Factoring company’s commonly charge you a fee that will increase the longer that a invoice remains un-paid. This is sensible, the more time an invoice goes unpaid = the greater the cost.

Below are 2 popular techniques for determining factoring fees:

1. Ten Day Fee: This is certainly the most popular factoring fee structure. In this case, the factoring company prices a fee for a 10-day period. For instance, 1.00% for every 10 days the invoice remains unpaid, this fee adds up until the customers pay the invoice in full. The fee for the first 10 days is 1.00%. The fee for the second ten days is 2.00% and etc.

2. Daily fee: This is the most basic factoring fee model you are charged a daily fee for each day that the invoice is unpaid by the customer. An example of this would be a 0.30% fee per day. This equals about 1.00% for ten days and about 3.00% for every 30 days the invoice remains unpaid.

These illustrations have got one thing in common = the cost of factoring a invoice for ten days is 1.00%. Using this information, you could say factoring is provided at rates “as low as 1%” Definitely, just make sure your invoice are paid very quickly and in ten days or less.

in the event that you are evaluating factoring proposals, you should contemplate looking at the fee structure carefully to recognize what the total cost of factoring is going to be for you. The best way to find out – check with your factoring company for the cost of factoring invoices for thirty or sixty days. That will provide you with a good measure of the actual factoring fee cost.

If your business is experiencing cash flow issues and is in need of funding, give us a call 1-888-382-3766 or visit us online by clicking here

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Invoice Finance

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[youtube http://www.youtube.com/watch?v=VNHTJtXlHMU&fs=1&rel=0&feature=player_embedded&hl=en]

To Get A Fast Quote for your Businesses Cash flow Needs
Click Here
One of our certified specialists will assist you. We offer credit lines starting at $5K up to $50 Million.