If you run a business and you want some ready cash to bolster it, you can enter into a factoring agreement with another company which provides this kind of service instead of applying for a loan.
When you enter into a factoring agreement, you agree to sell your accounts receivables invoices for a fraction of their total face value. The rates of return for the factoring of accounts receivable can help you determine which factoring company you enter an agreement with, or whether you enter into a factoring agreement at all.
“Rate of return” in practical terms, however, can mean different things for different businesses. It’s up to you to determine the kinds of benefits your business needs.
The Different Percentages of Your Account Receivables
Let’s say you have about $100,000 coming to you in customer payments, but you may have to wait a few months in order to get them all in full. If you want or need that money now, you can sell your invoices but you certainly won’t get the full amount. Typically, the percentages range from as low as 70% to as high as 90% of the total amount of the money coming to you. But recently, competition has been fierce among factoring companies, which has led to some pretty startling offers regarding these percentages.
Greater Maximum Amounts
Every creditor institution has its own limits as to how much they are willing to front each business it deals with. Some companies may offer up to a few hundred thousand dollars maximum, but others are willing to front up to $2 million (or even more).
If you are willing to forgo a percentage of accounts receivables so that you can get the money more quickly instead of waiting for a few months for them, then time is obviously an important factor for you. But there is also a time factor involved when dealing with a factoring company. You will have to consider just how fast a factoring agreement can be reached with a particular factoring company, and how fast each one can get you the money after the agreement has been finalized. It’s typical for a factoring company to need about two to five business days before they can get you your money, although others may need less than 24 hours. The speed of the transaction may also affect the eventual rates of return for the factoring of accounts.
More Willing To Accept Risks On Behalf Of Your Company
There are many kinds of factoring agreements, and some of these agreements concern what happens in the event that a customer doesn’t pay. Some factoring companies are willing to take on the risk of non-payment, although they would have to evaluate each customer to see if they meet their standards regarding acceptable risks. The “real” rates of return for the factoring of accounts you receive may depend on how many of your customers pass this form of screening. The more customers a factoring company regard as acceptable, the more money you get in return.