About Invoice Factoring Rates

What are Factoring Rates?


Factoring rates refer to the fees charged by a factoring company to purchase a business’s accounts receivable (invoices). These rates are typically a percentage of the invoice value and can vary based on factors such as the industry, the creditworthiness of the business’s customers, and the volume of invoices being factored.

How are Factoring Fees Calculated?

Factoring rates are calculated based on the risk involved in collecting payments from the business’s customers. The factoring company assesses the creditworthiness of the customers and the overall financial stability of the business. Typically, the factoring rates range from 1% to 5% of the invoice value, but they can be higher or lower depending on the specific circumstances.

Universal Funding’s factoring rates start as low as 0.55% and are usually no higher than 2%. There are many factors to consider when calculating the cost of invoice factoring.

We know that every business is different and deserves a customized financing program and we want you to get the lowest possible rate.

How can Businesses Find the Best Factoring Rates?

To find the best factoring rates, businesses should research and compare multiple factoring companies. It’s essential to consider not only the rates but also the reputation and reliability of the factoring company. Additionally, businesses should review the terms and conditions of the factoring agreement to ensure it aligns with their specific financial needs and goals.

Understanding the Cost of Invoice Factoring


Invoice factoring, also known as accounts receivable factoring, is a financing option that enables businesses to sell their unpaid invoices to a factoring company at a discount. The factor assumes the responsibility of collecting payments from the customers on the invoices they purchased, providing businesses with immediate working capital.

Discount Fee

The discount fee, typically ranging from 1% to 5% per month, is the primary cost of invoice factoring. It is a percentage of the total invoice value that the factoring company charges for its services.

Comparing the Costs

Let’s explore the cost comparison between invoice factoring and traditional bank loans:

1. Approval Process and Time

Invoice factoring usually has a faster approval process than traditional bank loans. Banks typically require extensive documentation, credit checks, and a more extended approval timeline, which can delay access to funds.

2. Collateral Requirements

Invoice factoring does not typically require collateral, as businesses are selling their assets (invoices). On the other hand, traditional bank loans often necessitate valuable assets as collateral to secure the loan.

3. Interest Rates

The discount fee charged by factoring companies is not an interest rate but rather a flat percentage of the invoice value. Traditional bank loans involve interest rates, which can vary based on the business’s creditworthiness and the term of the loan.

4. Repayment Flexibility

Invoice factoring offers more flexibility in repayment as it is directly tied to the invoice amounts. Traditional bank loans usually have fixed repayment terms, which can put a strain on a business’s cash flow during lean months.

5. Monthly Costs

Invoice factoring costs are straightforward, consisting mainly of the discount fee and any additional fees. Traditional bank loans, on the other hand, involve monthly interest payments and, in some cases, other fees, which can increase the total repayment amount.

Making the Right Decision for Your Business

Choosing between invoice factoring and a traditional bank loan depends on the unique needs and circumstances of your business:

  • Opt for invoice factoring if you require immediate cash flow relief, have outstanding invoices, and prefer a faster approval process with more flexible repayment options.
  • Choose a traditional bank loan if you need a lump sum amount, are willing to provide collateral, and can handle a longer approval process.

Factoring Fees Comparison


In the vast landscape of funding companies, it’s no surprise that each entity utilizes its unique system to determine factoring fees and advance rates. Unfortunately, not all companies offer transparent insights into their fee structures, making it challenging to calculate the actual cost of invoice factoring. To empower you with knowledge and ensure you make informed decisions, let’s delve into a comparison between Universal Funding and other lending sources. The following chart sheds light on potential hidden fees employed by other companies—essential details to inquire about before entering into any contractual agreements.

At Universal Funding, our unwavering commitment lies in providing you with the most competitive rates and keeping fees to a minimum. How do we achieve this? By maintaining an exceptional in-house team. This strategic decision streamlines our entire process, significantly reducing overall costs. In contrast, other factors may outsource these critical services, leading to increased approval and funding times as well as additional fees.

We understand that clarity and transparency are paramount to your financial success. That’s why we offer a comprehensive breakdown of our rates and fees, enabling you to make accurate calculations and informed decisions. If you’re eager to gain a precise understanding of our offerings, we invite you to complete our rate form. You can also directly connect with one of our knowledgeable factoring specialists by calling 800-405-6035. Our dedicated team of factoring specialists will promptly reach out to you, ready to provide a tailored rate quote that aligns with your unique needs. We’re committed to delivering an exceptional client experience, addressing your inquiries, and guiding you through the process with utmost care and expertise.

RELATED: 10 Considerations When Selecting the Best Factoring Company for Your Business

OTHER
LENDERS

Credit Line: up to $1M

  • Advance Rate: 85%
  • Days to Fund: 2
  • Credit Line: $1,000,000
  • First 30 Days: 3%
  • Monthly Access Fee: up to $100
  • In-House Underwriting: Rarely
  • Dedicated Account Rep: Rarely
  • Credit Approvals: up to $100
  • Overadvance Fee: 2%
  • Lock Box Fee: up to $250/month
  • Same Day Funding Fee: 1%
  • Early Wire Fee: 1%
  • Outgoing Wire Fees: $70

UNIVERSAL FUNDING CORPORATION

Credit Line: $25k-$20M

  • Advance Rate: Up to 95%
  • Days to Fund: 2
  • Credit Line: up to $5M/month
  • First 30 Days: .55%-2%
  • Monthly Access Fee: $0
  • In-House Underwriting: Yes
  • Dedicated Account Rep: Yes
  • Credit Approvals: $35
  • Overadvance Fee: None
  • Lock Box Fee: $50
  • Same Day Funding Fee: None
  • Early Wire Fee: None
  • Outgoing Wire Fees: $30

OTHER FACTORING COMPANIES

Credit Line: up to $250k

  • Advance Rate: 80%
  • Days to Fund: 5
  • Credit Line: $250,000
  • First 30 Days: 2.25%
  • Monthly Access Fee: –
  • In-House Underwriting: Rarely
  • Dedicated Account Rep: Rarely
  • Credit Approvals: $100 domestic $250 int’l
  • Overadvance Fee: ?
  • Lock Box Fee: ?
  • Same Day Funding Fee: 1%
  • Early Wire Fee: 1%
  • Outgoing Wire Fees: $70

An example of the cost of invoice factoring: A golf cart business journey


Allow us to paint a vivid picture of the financial journey in the custom golf cart business. Imagine that it costs you $7,000 and 15 days of hard work to produce a single golf cart, meticulously crafting it to perfection. You strike a deal with a customer who agrees to pay a handsome sum of $10,000 for this marvel on wheels. However, there’s a catch: they need 30 days to settle the payment. As a result, you find yourself waiting anxiously for 45 long days before receiving any compensation. These 45 days, laden with anticipation, serve as a bridge to cover the costs of producing another golf cart.

Finally, the payment for the first golf cart arrives, and you can breathe a sigh of relief. After deducting the production costs for the second golf cart, which amounts to $7,000 and takes an additional 15 days of labor, you find yourself with a $3,000 profit. It’s a modest success, but you quickly realize that building two carts at once is the key to maximizing your potential.

However, the journey to financial prosperity is not without its challenges. As you eagerly await payment for the second golf cart, another 30 days seem to drag by. Now, a total of 90 days has passed, and you’ve only managed to produce and sell two golf carts. The accumulated profit at this point stands at $6,000—a considerable improvement, but still falling short of your aspirations. The reality sinks in that operating at this pace limits your ability to grow and expand your business.

By embracing the transformative power of invoice factoring, a world of possibilities opens up before you. Imagine breaking free from the chains of extended payment cycles, enabling you to rapidly reinvest your hard-earned profits into your business. With invoice factoring, you can unlock a consistent cash flow by leveraging the value of your outstanding invoices. Instead of waiting for 30, 60, or even 90 days to receive payment, you can access a significant portion of the invoice value upfront.

This newfound financial freedom empowers you to accelerate your production capabilities. Now, instead of turning your money every 45 days, you have the means to swiftly build and sell golf carts on a continuous basis. Your profitability soars as you witness the seamless flow of funds, enabling you to produce not just two, but multiple golf carts simultaneously. The limitation of nine golf carts per year, which previously yielded $27,000 in profits, becomes a thing of the past.

With invoice factoring, the potential for growth and success in your custom golf cart business becomes boundless. By eliminating the constraints of delayed payments, you can unleash your creativity, expand your production capacity, and secure higher profits. Universal Funding stands ready to be your trusted partner in this journey, providing tailored accounts receivable financing solutions that fuel your business ambitions.

RELATED: Is Invoice Factoring Right for Your Business?

How do you calculate the cost of factoring?


Let’s assume your business continues to grow thanks to invoice factoring. Now you are building 10 golf carts each month. Your customer is Gary’s Golf World and he agrees to buy 10 carts each month for $100,000 with net30 payment terms.

To sustain this rapid growth and ensure a steady cash flow, you have chosen to collaborate with a reputable factoring company. Operating under mutually agreed-upon terms, the factor offers a favorable arrangement of 1.5% for 30 days, coupled with an advance rate of 85% on your invoices. By electing to factor Gary’s invoice each month, you seize the opportunity to propel your business even further.

The process unfolds seamlessly with each passing month. Following a meticulous verification of Gary’s invoices, the factor swiftly transfers $85,000 into your account—a financial boost that fuels your operations and enables you to meet your expanding production targets. Thirty days later, Gary fulfills his payment obligation by remitting the full $100,000 to the factor. As the curtain falls on this transaction, the factor deducts their fee of 1.5%, equivalent to $1,500, and disburses the remaining balance of $13,500 to you.

RELATED: How to Calculate if Invoice Factoring Will be Cost-Effective for Your Business

Now, let’s delve deeper into understanding the true cost of factoring. While some individuals might be tempted to calculate the cost by multiplying the 1.5% rate by 12 months, yielding an 18% annual percentage rate (APR), it is important to note that the world of invoice factoring operates differently from traditional banking practices. In factoring, the rate is determined by multiplying the factoring rate itself—a variable that can range from 0.55% to 2%—by the invoice amount. Applying this formula to our example, where the rate stands at 1.5% of $100,000 over 12 months, the calculated cost amounts to $18,000.

It is crucial to recognize the unique advantages of invoice factoring that extend beyond traditional financing methods. While the APR may seem higher at first glance, it is important to consider the comprehensive benefits it offers. By leveraging the power of factoring, you unlock an expedited cash flow, eliminate the burdens of delayed payments, and gain the financial freedom needed to propel your business to unprecedented heights.

How can you offset the cost of factoring?


In this realm of accelerated cash flow, you embark on a remarkable journey, crafting a magnificent golf cart every 15 days, totaling an impressive 24 carts per year. This revolutionary model enables you to turn your capital a remarkable 24 times annually, yielding a staggering profit of $72,000, all while utilizing a mere $7,000 in working capital.

While this financial accomplishment may leave you exhilarated, let’s delve deeper into the financial intricacies that often go unnoticed. Consider the payments you make to your vendors, leveraging their 30-day terms to manage your cash flow effectively. It is not uncommon for vendors to entice early payments by offering enticing discounts—ranging from 1% to 2% and, in some cases, even up to 10%—if settled within 10 days instead of the agreed-upon 30-day timeframe.

Now, let’s explore the potential savings generated by availing yourself of these early payment discounts. For instance, imagine a vendor extending a 2% discount on a $7,000 invoice—equating to a considerable $140. With a thriving golf cart production rate of 10 carts per month, your monthly obligations to the vendor amount to $70,000. Consequently, by seizing the opportunity to settle your dues within the early payment window, you accumulate savings of $1,400 monthly, amounting to a remarkable $16,800 annually.

The savings attained by promptly paying your vendors serve as a vital offset to your invoice factoring rate. Moreover, embracing early payments demonstrates your unwavering commitment to financial responsibility and establishes a strong foundation of credibility and trust with your valued vendors. By leveraging these strategic financial practices, you empower your business to thrive, paving the way for enduring success and harmonious partnerships.

At Universal Funding, we understand the intricate financial dynamics of businesses like yours. Our unwavering commitment to your success drives us to provide tailored solutions that fuel your growth, unleash your potential, and forge enduring relationships with vendors. Together, let us revolutionize your financial journey, propelling your golf cart business to new heights of profitability and establishing a reputation as a trusted industry leader.

Together, let us forge a path towards enduring prosperity, where your dreams of expansion become a vibrant reality. The future holds untapped opportunities, and with Universal Funding by your side, you are equipped with the tools to seize them.

Don’t wait 30, 60 or 90 days for customers to pay. Get an advance on your outstanding invoices with invoice factoring.