NOTE: Prime rate is the short-term interest rate (annual) used in the US banking system. The flat discount for 60 days would be $100*2.00% = $2.00
#Cost of invoice factoring plus#
The part of your fee based on prime plus margin would then be: $80 x 0.017% x 60 days = $0.84 This calculated on the amount advanced, not on the gross invoice amount so we need to calculate your advance. Your $100 invoice, if it’s paid in 60 days, will pay the following fees:
Plus a flat discount of 1.00% every 30 days. Most factoring companies use a combination of a flat fee and an annual interest rate to define their discount rates.Įxample: Let’s say that your factoring discount is: Here is a simple Factoring Flat Discount Calculator for you to input your numbers and see how it works.įactoring Fee: Flat Discount plus Margin Model The fee on your $100 invoice if it's paid in 60 days would be: An additional 1% Flat Discount Rate every 30 days afterward. A 2% Flat Discount Rate for the first 30 days and,. In this model, commonly used by the new wave of online lenders, fees are calculated by applying a rate on the gross invoice value instead of on the amount advanced. 
Typical Factoring Fees & Rate Models Flat Discount Model
Let’s see how factoring fees will be calculated using the two most common methods.Ĭlick here to learn about factoring advance rates. You have been offered an advance rate of 80%. Let’s say that you are selling a $100 invoice that will be paid in 60 days. We will now describe and exemplify the two most common approaches. Understanding these structures is crucial when evaluating factoring agreements. This section will help you understand how factoring rates are usually structuredįactoring companies use several parameters to structure their discount rates. 
The amount of invoices you plan to sell each month. The risk level of your company and your clients, and. The model the factoring company uses to structure its discount rates,. The invoice factoring rate that your company will be offered mainly depends on: The most popular options are a “flat discount rate” (for example 1% every 30 days) and a “flat discount plus margin” (for example 0.5% every 30 days plus PRIME+2% interest rate). Let’s talk about accounts receivable factoring fees.įactoring rates are the discount charge used to calculate factoring fees. We’ll provide comprehensive information so you can understand all the elements that influence the cost of factoring and also learn how factors (or computer algorithms in some cases) evaluate your company before defining your rates and fees. For instance, you may find that the single-fee model ends up costing your company significantly more in the long run. It’s important to understand how the fees are applied. The second one usually includes invoice factoring fees and factoring account fees. The first model consists of just one all-inclusive fee. So, how much do factoring companies charge?įactoring companies generally use any of two fee models to charge for their services: Receivable factoring rates that your business can realistically obtain. Different A/R factoring rates and fees models. In this document we’ll elaborate on the following subjects: Despite the teaser rate advertised by a factoring company, the final cost for you will depend on the terms of your factoring agreement, which are based on your individual company and client portfolio characteristics.Īn abundance of confusing information about invoice factoring exists online we’ll try our best to clarify and organize it for you. Unfortunately there’s no “one-size-fits-all” rule when determining the cost of factoring services. A common concern among factoring prospects is the cost of factoring receivables.
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