![]() ![]() The invoice factoring rate is calculated by multiplying the factoring rate, which can range from 0.55% to 2%. Most people want to calculate the cost of factoring by multiplying the 1.5% rate by 12 months, which would be an 18% APR. The factor deducts their fee of 1.5%, or $1,500 and pays you the balance of $13,500. ![]() Thirty days later, Gary pays the factor $100,000. Each month, upon verification of Gary’s invoices, the factor wires $85,000 into your account. You decide to factor Gary’s invoice each month in order to continue to grow your business. You are now working a factoring company and your terms are 1.5% for 30 days and an advance rate of 85% of your invoices. Your customer is Gary’s Golf World and he agrees to buy 10 carts each month for $100,000 with net30 payment terms. Now you are building 10 golf carts each month. Let’s assume your business continues to grow thanks to invoice factoring. How do you calculate the cost of factoring? Related: Is Invoice Factoring Right for Your Business? At this rate, you’re turning your money every 45 days and can only produce nine golf carts per year, yielding $27,000 in profits. Your total profit so far is $6,000-still not enough to build two carts at one to get ahead. Now, a total of 90 days has passed and only two golf carts have been built and sold. It takes another $7,000 and 15 days to produce the second golf cart and another 30 days to get paid. Once you get paid for the first golf cart and cover the cost of building a second cart, you have a $3,000 profit. That means you will go 45 days without payment to cover the cost of producing another golf cart. Your customer agrees to pay $10,000 for the cart, but needs 30 days to pay. ![]() Let’s say you are in the custom golf cart business and it costs you $7,000 to produce one golf cart in 15 days. An example of the cost of invoice factoring If you were to agree to a 1.5% rate, the same $10,000 would cost you $150 at 30 days and only $300 at 60 days saving 50% of what a weekly rate would cost you. Universal Funding provides a monthly factoring rate. We know that every business is different and deserves a customized financing program and we want you to get the lowest possible rate.įactoring a $10,000 invoice at a weekly 1% rate would cost you $400 a day 30 and $800 by day 60. As you do your research on the factoring company that is best for you, make sure you ask about their terms. On a net 30-day payment, that rate is really 4% and on a net 60-day payment, it would be 8%. Some Fintech companies offer an alluring 1% rate, but keep in mind this is a weekly rate, increasing by one percent each week. One of the many benefits accounts receivable financing is the value of turning your money more quickly and accessing working capital more readily. There are many factors to consider when calculating the cost of invoice factoring. Universal Funding’s factoring rates start as low as 0.55% and are usually no higher than 2%. ![]()
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