Get a Factoring Proposal from Each Lender So You Can Evaluate Them

Click Here To Get A Factoring Proposal
Click Here To Get A Factoring Proposal

One of the surest ways of comparing factors is to get a factoring proposal from each of them. Here’s how you do it:

  1. First you need to make sure that the factoring proposal contains all the necessary information. It has to specify the advance, which is the percentage of the value of the invoice given to you initially; the discount, which is the rate you pay for the cash advance you receive; and the factor’s additional fees.
  2. Next, check if the advance is enough for your needs. Get a list of the invoices you will submit (and those which you know will be approved for factoring) and then calculate how much you can get in advance for them. Is the amount of money you’ll be receiving in advance sufficient? Keep in mind that some lenders may offer only 70% of the value of the accounts receivable, while others may offer as much as 90%.

If the advance from a particular lender is not enough for your needs, then they need to be eliminated among your candidates.

  1. Now it’s time to look at the discount rate. This is much like the interest rate for loans. There are several ways of looking at this number. For example, some experts recommend that you find out the “true cost per dollar” by dividing the discount rate by the advance rate. A 70% advance rate with a 3% discount rate gets a true cost per dollar of (0.03 ÷7) of $0.0429. But an 85% advance rate with a discount of 3.6% has a lower total cost per dollar at just $0.0424.

What you need to remember is that the discount rate applies to the amount of the invoice, and not to the money you get in advance. This is why getting a larger advance is better than a smaller one. If you get $80,000 in advance from your $100,000 invoice, you pay $3,000 for the privilege if the discount rate is 3%. But if the advance is just 70%, then you only get $70,000 and you still pay $3,000 for that money.

  1. Finally, you need to think about all the ancillary fees the factor may charge. There may be setup fee for the factoring line. There may also be a fee for each account receivable, so that a pack of ten receivables totaling $100,000 can be ten times more expensive in ancillary fees than a single receivable worth $100,000.
  2. Add the total cost into your analysis, so that you will have a very clear picture of how much you will get in advance and how much you have to pay for this kind of service. The lower the total cost, the better it is for you.

Just keep in mind, however, that when you get a factoring proposal it should not be your only consideration. You need to know if the factor is easy to work with, if they are trustworthy and professional, and so on. You will need to ask for references to find out.

Need Working Capital? Click Here or Call 1-888-382-3766 for a fast quote

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.


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