How can invoice factoring benefit me?
The chief way of knowing if receivables factoring is for you is to not to look only at the bottom-line receivables funding fee, but also to feel how your business may build up it’s profits through factoring.
Here is summative information taking factoring receivables to help you with your preference.
What is the formula to determine fees and advance rates?
It is based using few criteria:
The creditworthiness of your clients
Your monthly billing volume
Average invoice size
Average days to payment
Fees can range from 2-5 % of the invoice’s face market value.
For example if the invoice’s worth is $1,000; a fee of 3% equals $30.
Advance defined
The sum total of funds you get hold of immediately when we buy your invoice. The balance is restored to you when your customer pays the invoice.Advances range from 60-95% of the invoice’s face value. For example if the invoice’s value is $1,000 an advance rate of 80% equals $800. The balance of $200 less the factoring accounts receivable fee is reimbursed to you when your customer pays the invoice.
Comparison of Bank Lending Rates to factoring services?
When compared to bank lending rates, factoring receivables initially appears to be very steep. Here are five typical questions/concerns that are raised by potential factoring receivables clients
No way! 3 points per month! That’s 36 percent year!
It is tempting to annualize the numbers, but that is an "apples and oranges" similarity.Banks loan hard cash at an annualized interest rate, 12 percent per year for example. We acquire your receivables at a discount. The products are unlike and there are other inconsistencies to this out-of-the-way contrast
The bank serves the hard cash only one time, the day that you acquire the loan; we deploy cash forever. As an example, regard a bank loan for $100,000 at 12 percent. You take hold of the $100,000 just one time and then pay back $1,000 interest per month interest and you still owe the $100,000. Or the bank could deliver you with a line of credit that you claim only when you need the cash but the bank is charging you for that authorization and if you want to build your line you desire to go through the qualifying act all over again.
When you sell $100,000 each month for a year you have the service of $1.2 million (12 x $100,000) over the year. Unlike a bank loan where you have just $100,000 one time. Assuming a 3 point discount, the fees over the year will be 12 x $3,000 or $36,000, which is still 3 percent of $1.2 million. With no debt acquisition at years end!
I only get 3% profit, how can I give you 3 points?
A company delivering only 3% net profit can do greater business volume as a outcome of accounts receivable factoring, and the greater volume will eventuation in a higher profit margin because fixed costs do not pump up with volume. The additional business at a greater marginal profit leads to an increased overall profit margin. As the volume balloons, the cost of production cuts back, so that profits gain. Fixed costs i.e., rent, electric, insurance, etc., develop barely or not at all with volume. An build in business will not affect rent. Electric bills may grow insignificantly. Workers compensation insurance may rise to a degree. These costs do not gain as do direct production costs.
Let’s graphically do the math for example you can double your sales
Without invoice financing
Monthly Gross Sales $50,000
Cost of Goods Sold $30,000 60% of Gross Sales
Monthly Gross Profit $20,000 40% of Gross Sales
Fixed Expenses $10,000
Variable Expenses $8,500 17% of Gross sales
Receivable loan Fee N/A
Total Expenses $18,500 37% of Gross Sales
Monthly Net Profit $1,500 3% of Gross Sales
With accounts receivable factoring
Monthly Gross Sales $100,000
Cost of Goods Sold $60,000 60% of Gross Sales
Monthly Gross Profit $40,000 40% of Gross Sales
Fixed Expenses $10,000
Variable Expenses $17,000 17% of Gross Sales
Receivables funding Fee $3,000 3% Fee
Total Expenses $30,000 30% of Gross Sales
Monthly Net Profit $10,000 10% of Gross Sales
Only 80% of my money is advanced!
Let’s imagine an advance rate of 80%. Let’s also deem that you assure factoring accounts receivable in January. You have factored $100,000, we pay you $80,000 of that moneys upfront, with the remaining moneys getting up the fee (3%) of $3,000 and the reserve (17%) of $17,000.Presently in February, you once again sell $100,000 and take into account $80,000. Yet. you also take in your January reserve of $17,000(let’s assume your customer pay back in 30 days). So for February, you actually gain 97% of your funds, instead of 80%.In the second month and going forward you are basically attaining 97% of your erratic cash flow.
But what if my customers string it out more than 30 days to give?
You have a certain number options, Presurmise your client takes 60 days to pay you bill your client in the proper fashion and simply allow 30 days to go by antecedent to factoring that invoice. That way you give the 30 day fee. A different way is to factor your fleet-paying customers first for the cash you want.
Why Businesses Choose Us Again and Again for their invoice factoring
We provide businesses nationwide with hundreds of millions of dollars annually.
We have been providing invoice factoring services nationwide for decades and have clients in hundreds of industries. Including factoring for Health Care Staffing
please click here for More Reasons To Choose Our Services.