Deciding whether debt factoring is right for your business will depend on several elements but broadly speaking, businesses that offer trade credit can benefit from it. Is debt factoring right for your business?Īs we’ve now seen, there are many advantages and disadvantages to debt factoring.
Typically, the service fee increases the longer it takes for the customer to pay the invoice.Īs a simple example, take a look at the breakdown below based on a processing fee of 3% and a service fee of 1.5%. For example, it’ll cost you more to factor an invoice with 60 days left than 30 days. The processing fee is usually between 1.5%-5% of the total invoice value.īut the service fee (also known as the factoring period fee) will depend on the term length of the invoice. The cost of debt factoring can vary but it’s mainly based on two things - the processing fee and the service fee. Once your customer pays the invoice, the factoring company then returns the rest of the invoice value minus a small fee. The factoring company takes over the responsibility of collecting payment and provides you with a percentage of the total invoice value (usually between 80%-90%). With debt factoring, you can sell those outstanding invoices to a factoring company and get paid right away instead of waiting until the end of the invoice term. Not having access to your entire working capital can prevent you from growing further and investing in your company. While your B2B sales numbers look good, you’re still waiting to receive payment. Let’s say you offer your B2B customers purchases on invoice, (aka trade credit or net terms.
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