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Receivables Factoring Rates

receivables factoring ratesWhat is the "market rate" for their services (not the factor rate for borrowing)? Also, do you get charged a "credit risk fee" if you do business with another client of the same factor?

Answers

Gary Honig
Title: President
Company: Creative Capital Associates Factoring Co..
LinkedIn Profile
(President, Creative Capital Associates Factoring Company) |

Wayne,

I think what you mean is the "discount fee." This is the fee deducted from the customer payment for financing the invoice.

The factoring transaction comes in 3 parts - The Advance, The Reserve, and the Fee. If you submit an invoice to be factored, a percentage is wired directly to your account - the industry norm is 80%. The remaining 20% is held in reserve until the customer sends their payment (following instructions) directly to the factor. Upon receiving the payment the factor deducts the fee and sends the remainder of the reserve on to the Client (financed party.)

Typically the factor is not lending on the receivable but is purchasing the invoice. The fee is associated with the servicing of that purchase which includes, checking the credit of the customer, notifying the customer that the proceeds of the invoice have been assigned, and verifying that the work has been completed and accepted.

The factoring industry does not have a set way of doing this where every factor sets their fee schedule the same way. So it is important for a company to get a sense of the fee structure in order to compare apples to apples. There are reasons for this, which I won't go into here.

A market rate for factoring fees can be 1% on the low side to 4% on the high side for an invoice unpaid for 30 days. The fees generally are set based on the monthly volume of purchases and the credit analysis of the customers, although it can have a direct affect given a few particular industries.

As to your second question, there is usually never any "credit risk fee" that might be over and above the contracted discount fee. But each account debtor is subject to a credit analysis and given a range of credit limits. If a company is already factoring with a factor and is a customer of another factoring client it definitely means that company is not creditworthy enough for factoring. A confusing sentence which means what you are asking will not happen.

I hope this answers your questions.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Thanks Gary, the last two paragraphs gave me the info.

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