Have you heard that invoice factoring is costly? Have you heard about high rates? Let’s take a look at the actual cost of invoice factoring. The results may surprise you. A factoring transaction involves the sale of invoices. The factoring rates at Universal Funding can start as low as 0.55% and can go up to 3%.
To determine your specific rate we will take a look at many variables including:
• your sales volume,
• your customers’ credit strength
• trends in customer payment cycles
• invoice amounts
• and the current climate of your industry
Once a rate is established we can look at the true cost of accounts receivable financing. For this scenario, if the factoring agreement calls for a 2% factoring rate, a $100,000 invoice would be purchased for $98,000. If a company factored a $100,000 invoice each month for 12 months, they would have consummated $1,200,000 in business with their customers. At a 2% rate, they will have a business expense of $24,000 and net $1,176,000.
Now let’s take a look at the cost of a traditional loan with a bank. If the company borrows $1,200,000 at 2% APR, at the end of 12 months they will also have a business expense of $24,000. In other words, whether the company borrows $1.2 million or factors $1.2 million, their cost will be the same. The major advantages to factoring are that the approval process is faster, you have access to funds faster, and there is no debt or payments to be made.
Universal Funding offers some of the lowest factoring rates in the industry. If you want to work with one of the premier factoring companies call Universal Funding today at 1-800-405-6035.