![]() ABC Factoring sends you $280, the rest of the money they owe you. ![]() Right away, ABC Factoring sends you $1,600.You factor the invoice with ABC Factoring at a rate of 3% monthly.This example doesn’t use a tiered system, and doesn’t take into account additional fees (discussed below). Here’s a step-by-step example using Greg. The longer your client takes to pay an invoice, the higher the factor rate. The industry standard is 0.5–5% per month.Ī lot of factors have a tiered system. The factor rate (also called a discount rate) is a percentage of the invoice value, charged weekly or monthly. You’ll get the other 20%-minus the factor rate-once the client pays their invoice. ![]() When you factor invoices, you can expect to receive about 80% of the value of your accounts receivable upfront. Here are the common rates and fees you expect a factor to charge. A line of credit is an ongoing source of capital you can draw from when needed. The onus is on the factor to collect the receivable and get paid.Īnd unlike a line of credit, it’s a one-time infusion of cash, directly related to invoices you agree to finance. How it differs from other financing optionsįactoring is not considered a small business loan, because there isn’t anything to pay back. And once Greg pays his invoice, the factor will have their money as well. The factoring company gives you $2,000, minus a few percent to cover their rates. Problem is, you need cash ASAP to buy a new leaf blower. You’ve just sent your client Greg an invoice for $2,000, payable in 60 days. Let’s say you run a landscaping business. Sometimes factoring companies will check out the creditworthiness of your clients, too-they want to make sure they’re not dealing with people who won’t pay their invoices. Generally, it takes two to seven days to qualify for invoice factoring, and another one to two days to receive payment from the factor. To factor an invoice, it must have a term of 30 to 90 days.
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