Factoring is a very popular method these days of using invoices to get the funding you need. Basically, instead of having to wait for 30 days for a customer to pay fully, you get 70% to perhaps even 90% of the value of the invoice in just a day or two. When the customer finally pays after 30 days, you get the rest of the money after the factor has deducted its fees. These fees often depend on the agreed upon 30 day factoring rates.
There are several considerations which can affect these rates:
- The credit-worthiness of your customers. One of the reasons why factoring is so popular these days it that it’s easy to get approval for the funding. That’s because your company’s credit history and your own credit is immaterial. You can have lousy credit and you can still get your funding through factoring.
- What matters most here is your customers’ ability to pay. So if it seems that these customers are always paying in full and on time, you can expect lower 30 day factoring rates. It can get higher if there is greater risk that your customer won’t pay at all.
- The value of the business you give them. When factors negotiate a factoring agreement with you, they will take note about how much business you decide to bring their way. If you just want a one-time deal, then the 30 day factoring rates can be very high.
- But if you enter a lock-in contract for a couple of years, then the rates can be much lower. It can also be lower if the volume of the invoices is very large. If you bring in a million dollars’ worth of invoices a month, then the 30 day factoring rates can get very low. This is especially true of the invoices involved are few with high amounts, rather than thousands of invoices with little amounts for each.
- The percentage of the advance. Some factors may offer a large advance, but they may charge higher 30 day factoring rates. But if you are satisfied with a lower cash advance, then you may enjoy lower rates.
- Recourse or non-recourse. With regular recourse factoring, the factor can demand that you return the advance if your customer does not pay for any reason. With non-recourse factoring, the factor can’t go after you if the customer is unable to pay due to bankruptcy.
- Since the factor is assuming a greater risk for non-recourse factoring, that means higher 30 day factoring rates.
- The experience of the factor in your industry. If you are a staffing company, for example, what you need is a factor who is already familiar with staffing invoice procedures and the need for time stamps. Since they already know how to set up the factoring line, the rates may be lower than what a newbie to the industry will demand.
- Obviously, you want the lowest 30 day factoring rates you can get. So get a factor with experience in your industry, and submit only the invoices which involve credit worthy customers.