Questions to Ask About Your Factoring Rates

Questions to Ask About Your Factoring Rates

Factoring is the process of selling your available accounts receivables to a third party, known as a factor or factoring firm. United Capital is one of the most recognized factoring firms in the United States, and we offer significant benefits and services for our small business clients.

Factoring rates are the rates used to calculate the amount of the fee that your business will pay for the service. When calculating the factoring rates, all factoring companies take into consideration things like the invoice amount, creditworthiness of customers, payment terms, and annual sales volume. The credit score of your business is not used to calculate factoring rates.

Factoring Rates Explained

There are a few main types of factoring rates, which are the Prime Plus Rate (sometimes known as the flat fee) or the Discount Rate (sometimes known as the tiered rate).

The Prime Rate is composed of two different fees. The first is the one-time fee per invoice for factoring. The second is the interest charged on the advanced amount of the invoice based on an advanced rate.

The Discount Rate uses the length of repayment time and adjusts percentages accordingly. For example, the rate might be one to two percent for an invoice paid back within 10 days, then adjust to three to four percent for ten days to a month, and increase over time. The Prime Plus method is usually cheaper than the Discount Rate method.

Factoring rates can increase or decrease depending on the Prime Rate Index. This will be recalculated daily on a range of the Prime Rate. For example, the rate could be the prime rate plus or minus one or two percent.

Other Fees

There can be hidden fees in each contract, so it is important to read the fine print. Some companies will have abnormally low factoring rates they offset by making you pay for your customer’s credit reports, auditing services, postage, processing fees, or termination fees. You may also be required to pay an additional fee if you wish to have the advance funding on a “rush” basis.

Other companies will have no hidden fees but higher factoring rates. One fee to watch for is the recourse fee. This is a fee instigated when your customer fails to pay the invoice. You, in turn, become responsible for the payment.

As a top factoring company we are very clear about the fees a small business will assume in the transaction. We do not have any hidden fees, and we never charge any fee for processing your application. We take the time to explain any fees and ensure all question are answered with regards to our fees and our value-added services.

By being very clear about our fees, our clients have a complete understanding of the amount they will pay for our factoring and value-added services. With competitive rates and a range of helpful services, we know we can be your small business factoring firm.

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