AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |
Back to Blog
Invoice factoring meaning4/6/2023 ![]() In this case, it takes your customer three weeks to pay the invoice. The factoring company charges a 1% factor fee on the total value of the invoice for each week it takes your customer to pay it. You receive $160,000 and the remaining $40,000 is held by the factoring company. You apply for invoice factoring and the factoring company agrees to advance you 80% of the invoice value upfront. Let’s say that you have an outstanding invoice of $200,000. ![]() With all of this information in mind, let’s break down an invoice factoring example to get a more comprehensive understanding of this type of financing. In essence, this means you’ll be charged a small percentage fee (usually 1% to 2%) on the total value of the invoice for each week it takes your customer to pay it.Īdditionally, in some cases, factoring companies will also charge a processing fee (usually around 3%) at the point of sale. Typically, invoice factoring companies charge their fees as factor rates. Once your customers have paid the invoices, the factoring company will transfer you the remaining percentage of funds, minus their fees. As we’ll discuss below, this is one of the inherent differences between invoice factoring and invoice financing. ![]() Then, the invoice factoring company will take over the responsibility for collecting on the outstanding invoices. Generally, factoring companies will be able to advance you up to 90% of the value of your invoices-and once they’ve verified the invoices-transfer you the funds in just a matter of days. Unlike a traditional term loan-where you receive a lump sum of capital that you pay back, with interest, over a set period of time-with invoice factoring, you sell your outstanding invoices to a factoring company in exchange for an advance of capital. Once again, as we mentioned above, invoice factoring is very different from many other types of financing. Now that we have a basic definition of what invoice factoring is, let’s take a more detailed look at how this type of business financing actually works. ![]()
0 Comments
Read More
Leave a Reply. |