Invoice Factoring Costs
Invoice factoring enables you as a business owner to attend to other important matters that might need your attention from time to time. The factoring provider buys your owed invoices thereby being able to handle all the invoices on your behalf. This looks good, isn’t it? It is for someone who understands the value of a customer and why you need to keep them. But a lot of people still do not really understand what it is all about and how invoice factoring costs work. Before knowing how it works it is important o fully understand the basics and what you are getting into.
Factoring companies pay your invoices in advance by giving you 85% of the amount owed in advance. This can take between 24 hours to three days depending on the company. The balance is paid to you by the factoring company once your clients make good their payments. But you also need to know that you also pay for the services provided. There are different invoice factoring costs depending from provider to provider. Service fee is normally deducted from the balance remaining at an agreed percentage of the turnover. It is therefore important to agree on the charges before signing the agreement.
It is also worth noting that poorly paying customers can increase your factoring charges if they do not pay within the agreed time. It is therefore important that customers pay the invoices between the agreed 60-90 periods to avoid incurring extra unnecessary charges. Factoring is an easier way of paying your bills when no bank wants to touch you with a 10 inch pole. This can be quite disturbing and in the real sense embarrassing. When payment is delayed as sometimes is bound to happen, a fee of between 0.5 - 3% is charged per month on all overdue payments. This amount depends on providers too.
It is therefore important that you understand all the basics of factoring before you sign that agreement. One of the most important aspect every one on factoring needs to know is that it is an easier way of settling bills and compared to banks, it can be quite costly. Because of issue with banks and cash most SMEs are opting to go the factoring way to help their business run without any unnecessary issues. It is also important to sign a confidential agreement if you do not want your customers to know with your provider. A lot of customers are uncomfortable paying to third party providers.