It is undeniable that the use of accounts receivable factoring by businesses across the globe and here in the U.S. continues to grow. Part of this can be attributed to the loss of the stigma that was formerly associated with alternative financing as well as banks’ lending less to businesses. One doesn’t have to be clairvoyant to predict that the trend of increase use of business factoring services is likely to continue for the foreseeable future.
Your Business Moves Fast, and So Does Factoring Financial Services
Yet according to Inc.com, those pursuing business factoring services need to be aware of the pros and cons of this new-to-them financial option. One major benefit of this service is expediency. While traditional financing options such as bank loans can take weeks, invoice factoring services usually takes a day or two. The price of this fast turnaround, however, is potentially higher costs depending on your unique situation.
Fast-Moving Financial Services Factoring May Cost More Than Snail-Paced Banks
Factoring receivables generally costs 2-8% of the amount factored, plus additional fees such as processing fees for each invoice being factored. Most invoice factoring companies charge less for the most current receivables and more for aged receivables. The greater amount you are factoring, the less it will generally cost you. Reputable companies will let you know up front of what you are expected pay in terms of fees and percentages. Those who regularly use these services accept the fees as part of the cost of doing business fast. Banks may charge less but you can’t get cash in two days from a bank.
Though more costly than traditional business loans, factoring services are generally less expensive than other alternative financial services, such as merchant cash advances and credit card debt. Moreover, they provide other administrative assistance that banks and other financial institutes don’t such as assistance with debt collection and management of receivables. Some businesses that work with factoring companies count the cost (both in dollars, time and effort expended) of such services into its overall price.