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What amounts do I enter into the calculator?
What is invoice factoring?
What's are the types of invoice factoring?
How are factoring fees determined?
Is it worth it to factor my invoices?

What is invoice factoring?

Invoice factoring is the process of selling your invoice to another company. The other company will typically pay you a portion of the invoice value within 24 hours and a rebate when they collect the full invoice amount from your customer. There are some companies that will fund 100% of the invoice value minus their processing fee.

Example: You have a $1000 invoice from a customer with good credit. You contact a factoring agency on 1/2/08 to sell them your invoice. On 1/3/08 the factoring agency pays you $900 for your invoice. Your customer pays the factoring agency within 30 days. The factoring agency sends you a rebate of $70 on 2/2/08 and keeps $30 as a processing fee. The amount of rebate you receive is dependent upon when your customer pays the invoice. The length of time it takes for your customer to pay is directly related to the rebate amount you will receive. Here's a typical factoring table.

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What are the types of invoice factoring?

The type of invoice factoring you use is very important. The two types of factoring are recourse and non-recourse. Recourse means that if your customer doesn't pay the invoice you will be liable to pay back the advance you received.

Non-recourse means that you have no further liability related to the factored invoice. If your customer doesn't pay the invoice you do not have to repay the advance you receive. If your customer doesn't pay the invoice because it is a disputed transaction then you will be liable for the invoice even with non-recourse factoring.

Non-recourse factoring is usually more expensive than recourse factoring. Most companies charge between .5% to 2% for non-recourse factoring.

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How are fees determined?

Your customer's credit rating, the amount of the advance, the number of invoices you factor and days to pay the invoice are all factors in determining your transaction fee. Factoring a large number of invoices with the same company usually reduces transaction fees.

Review your accounts receivable. When deciding which invoices can be factored, you must put the highest priority on when your customer usually pays their invoices. You can safely factor the invoices of all customers that pay in less than 60 days. Keep in mind that the longer it takes for your customer to pay their invoices, the higher your factoring transaction fee will be.

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Is it worth it to factor my invoices?

Whether or not you should factor an invoice depends on many facts. What are the fees involved in the transaction. Factoring companies usually charge a documentation fee, wire transfer fee, a setup fee, early termination fee etc... You must be sure to find out all of the fees from the company you plan to use to determine if you should factor an invoice.

Most companies require that you factor all invoices from one customer with them. You will not be allowed to factor individual invoices for the same customer. This will cause confusion for your customer if they have to pay invoice #1 to you and invoice #2 to the factoring company.

Some companies will advance 90% to 100% of the invoice amount. This will help provide working capital and with non-recourse factoring your financial liabilities will be limited.

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What amounts do I enter into the calculator?

Amount: This field should contain the total value of the invoice. You don't need to enter the dollar sign.

Advance: Enter a whole number representing the amount of the advance that you will receive. The calculator will change the number from a whole number to a decimal. If a company has informed you that they will advance 80% of the invoice amount, you would enter 80 in this field. You don't need to enter the percent sign.

Factoring Fee: Enter a whole number representing the amount the company will charge to factor this invoice. If the fee is 4%, you would simply enter 4. There is no need to enter the % sign.

Misc Expenses: Enter the total dollar value of the additional fees the company will charge. There may be a documentation fee or wire transfer fee etc. This field does not need the dollar sign. Only enter fees that are related to factoring the invoice.

Example: If the company charges a documentation fee or wire transfer fee on every invoice you process with them, then include those amounts in this field. If they charge an account set up fee one time and you plan to factor many invoices with the company, then you don't need to include the account set up fee.

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