Let's face it, unpaid invoices suck! Especially when they take too long to be paid. But wait, isn't there a way to fix this? Yes, through invoice factoring. This is probably not a new concept to you. So, why haven't you tried it yet?

The best guess is that you're skeptical about it. After all, having someone else pay out your customer's invoices as soon as you need them sounds way too easy, right? Well, it sounds easy because it is. But, it comes at a cost. You might part with 1% to 3% of your invoice's value. But considering the monetary benefits it presents to your business, I'd say it's worth it. So, how do invoice factoring companies come up with these rates? And how much do you expect to part with?

What Invoice Factoring Rates Should You Expect?

Discount Fee

Discount fees can vary anywhere from 1% to 5%, depending on the invoice factoring company you choose to get into a relationship with. A discount fee is imposed on the total value of your invoice. It covers a period of about 30 to 45 days from the day you sell the invoice to the day the receivable is paid.

Application Fee (Flat Fate)

Both the amount and the way you pay application fees all come down to the company you're using. Some companies charge application fees upfront, while others recover the fee by increasing your initial financing fees. 

The intricate nature of application fees causes them to vary by a great amount. It can range from zero to a few thousand dollars. So, whenever you're choosing an invoice factoring company, you'd better watch out for this.

Monthly and Termination Fees

Like the application fees, monthly and termination fees vary greatly from company to company. Some companies require you to sign a long-term contract and sell a percentage of your invoice each month. If you don't meet this monthly target, you may incur a minimum monthly fee. They might also charge you a cancellation fee for terminating the invoice early.  

Factoring Fee

Suppose the receivable goes unpaid past the 30 - 45 day period covered by the discount fee. In that case, the invoice factoring company might charge you an extra 2% to 3% for every 30 days the receivable goes unpaid. That being said, some companies may charge lower factoring fees but compound the rates on shorter periods of about ten days.

How to Calculate Invoice Factoring

Now that you know all the costs involved, how do you add them up? Two costs come into play when calculating invoice factoring; flat rate and variable rate. A flat rate is simply the one-time upfront (application) fee you pay. The variable rate encompasses all other variable costs like factoring fees and monthly and termination fees.

Variable fees affect the cost of invoice factoring in that; the higher the volume of invoices you sell, the lower your factoring costs drop. The amount of time you take to pay the receivable also plays a part in determining the cost of invoice factoring.

You can calculate the cost of invoice factoring yourself by multiplying the factoring rate with the invoice amount and payment period, ie.

Invoice factoring cost = factoring rate x invoice amount x payment period

You can also use our Invoice Factoring calculator.

Ready to Get Paid?

Invoice factoring can do a lot for your business. With cash in hand, you're in a better position to pay your bills on time and grow your business exponentially. Say goodbye to cash problems due to unpaid invoices. Apply now! And get the best invoice factoring rates on the market.