Various business leaders across the world, if given the chance, would sell their receivables in exchange for hard cash payment today. The only concern small business owners have is the accounts receivable factoring fees involved in the transaction, which is tagged to each transaction and can be rather large.
Factoring companies, often also called factors, are companies that purchase invoices from small businesses in exchange for hard money, or cash. The accounts receivable factoring company takes the risk of a potential customer default, but benefits from the fee charged on the transaction. This fee is also called the discount fee or commission and it is charged every time the factor buys invoices or receivables.
This is certainly not the single fee charged by factoring companies. Accounts receivable factoring companies also charge one-time start up fees to set up the account at first when they review the business. These companies want to learn how the invoices were generated, as well as the customer's risk profile and likelihood of default.
Accounts receivable factoring rates can be as low as 1% and as high as 5% and even more these days. However, most accounts receivable factoring companies try to keep this number in the 3% range. At 3%, factoring invoices and receivables is fairly affordable for a small business. 5% or more is a whole different ball game if you ask me.
In terms of set up fees, they are usually broad in range so it is hard to comment on. Many accounts receivable factoring companies however do not charge this fee because they instead focus on getting the business from the small business instead. It's a sunk cost they eat up.
There are no other fees aside from those two discussed above. I hope I was able to teach you something new, something useful that you can use in your business today, or share with a friend who can benefit from it as well.
Factoring companies, often also called factors, are companies that purchase invoices from small businesses in exchange for hard money, or cash. The accounts receivable factoring company takes the risk of a potential customer default, but benefits from the fee charged on the transaction. This fee is also called the discount fee or commission and it is charged every time the factor buys invoices or receivables.
This is certainly not the single fee charged by factoring companies. Accounts receivable factoring companies also charge one-time start up fees to set up the account at first when they review the business. These companies want to learn how the invoices were generated, as well as the customer's risk profile and likelihood of default.
Accounts receivable factoring rates can be as low as 1% and as high as 5% and even more these days. However, most accounts receivable factoring companies try to keep this number in the 3% range. At 3%, factoring invoices and receivables is fairly affordable for a small business. 5% or more is a whole different ball game if you ask me.
In terms of set up fees, they are usually broad in range so it is hard to comment on. Many accounts receivable factoring companies however do not charge this fee because they instead focus on getting the business from the small business instead. It's a sunk cost they eat up.
There are no other fees aside from those two discussed above. I hope I was able to teach you something new, something useful that you can use in your business today, or share with a friend who can benefit from it as well.
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