How Much Does Invoice Factoring Cost?

Let's face it, unpaid invoices suck! Especially when they take too long to be paid. But wait, isn't there a way to fix this? Yes, through invoice factoring. This is probably not a new concept to you. So, why haven't you tried it yet?

The best guess is that you're skeptical about it. After all, having someone else pay out your customer's invoices as soon as you need them sounds way too easy, right? Well, it sounds easy because it is. But, it comes at a cost. You might part with 1% to 3% of your invoice's value. But considering the monetary benefits it presents to your business, I'd say it's worth it. So, how do invoice factoring companies come up with these rates? And how much do you expect to part with?

What Invoice Factoring Rates Should You Expect?

Discount Fee

Discount fees can vary anywhere from 1% to 5%, depending on the invoice factoring company you choose to get into a relationship with. A discount fee is imposed on the total value of your invoice. It covers a period of about 30 to 45 days from the day you sell the invoice to the day the receivable is paid.

Application Fee (Flat Fate)

Both the amount and the way you pay application fees all come down to the company you're using. Some companies charge application fees upfront, while others recover the fee by increasing your initial financing fees. 

The intricate nature of application fees causes them to vary by a great amount. It can range from zero to a few thousand dollars. So, whenever you're choosing an invoice factoring company, you'd better watch out for this.

Monthly and Termination Fees

Like the application fees, monthly and termination fees vary greatly from company to company. Some companies require you to sign a long-term contract and sell a percentage of your invoice each month. If you don't meet this monthly target, you may incur a minimum monthly fee. They might also charge you a cancellation fee for terminating the invoice early.  

Factoring Fee

Suppose the receivable goes unpaid past the 30 - 45 day period covered by the discount fee. In that case, the invoice factoring company might charge you an extra 2% to 3% for every 30 days the receivable goes unpaid. That being said, some companies may charge lower factoring fees but compound the rates on shorter periods of about ten days.

How to Calculate Invoice Factoring

Now that you know all the costs involved, how do you add them up? Two costs come into play when calculating invoice factoring; flat rate and variable rate. A flat rate is simply the one-time upfront (application) fee you pay. The variable rate encompasses all other variable costs like factoring fees and monthly and termination fees.

Variable fees affect the cost of invoice factoring in that; the higher the volume of invoices you sell, the lower your factoring costs drop. The amount of time you take to pay the receivable also plays a part in determining the cost of invoice factoring.

You can calculate the cost of invoice factoring yourself by multiplying the factoring rate with the invoice amount and payment period, ie.

Invoice factoring cost = factoring rate x invoice amount x payment period

You can also use our Invoice Factoring calculator.

Ready to Get Paid?

Invoice factoring can do a lot for your business. With cash in hand, you're in a better position to pay your bills on time and grow your business exponentially. Say goodbye to cash problems due to unpaid invoices. Apply now! And get the best invoice factoring rates on the market.

Pros and Cons of Invoice Factoring

Running a business can be a little hectic sometimes. For example, you may find yourself with a couple of invoices meant to bring you money but have no cash at hand. This can put you in a tight place, and your business may take a hit. Perhaps you need the money to take on another project or to finance your day-to-day business activities. 

If you ever find yourself in this predicament, worry not. There is an easy way to get money flowing backing the business. 

Invoice factoring is the process where you "sell" your outstanding invoices in exchange for cash at hand. Crown Financial, LLC advances 80% - 90% of the invoice total and then collects the money from your client. You get to run your business and have money in circulation without needing to wait for a month or even three for the invoice to clear.

If, at this point, you're wondering whether factoring invoices is good for your business, then read on to learn more as we double down on its pros and cons.

Pros

Here are some perks that come with factoring invoices.

Get money when you need it.

If you need money on short notice, then this is the best option for you. There will be less paperwork to do, and the procedure is straightforward.

Immediate cash flow

If you need money, bank loans can take a while to be processed and sent your way. On the other hand, factoring invoices guarantees you instant money, there is no long wait, and you can put the money into whatever use you needed it for in the first place.  

Ongoing cash flow

For your business to thrive, you need to have money in circulation. Once you have a rapport with the factoring company, they can sort you out whenever you need money. It ensures that things keep running in the business without a hitch. Factoring invoices does not only save the day during emergencies; it can help with the regular cash flow needs too.  

Your factor grows with you.

The more invoices you sell, the higher your chances of you getting cash when you need it. It is like developing a good credit score for when you need a bank loan.  

Take on more work

Any business person can tell you the pain of bypassing great project opportunities simply because of a lack of funds. Luckily, factoring ensures that you can work on a new project without completing another because you have the money to get the job done.

Better chance to get approved

Bank loans require a lot of paperwork and have so many hoops that are hard to jump through. With the factoring option, all you need is to have trustworthy clients who honor their pay, are B2B and they are a domestic business. Your credit score will not be an issue, your client is on the hook for that.

Cons  

Your factor works directly with your customers.

Since the factoring company will collect the money from the customer, you may run a risk of losing your clients. For instance, if the factoring company is harsh and aggressive when collecting the money from the invoices, this can work against you and ruin the relationship you built with the client. So make sure you choose a trusted invoice factoring company like Crown Financial.

Might pay higher fees than traditional loans

Typically, the factoring company takes away a percentage of your earnings. Most companies charge around 1 to 3 percent of your total invoice amount. While you will get the cash instantly, you lose a chunk of it. That is something you have to consider and figure out if it is worth it in the end. But not every factoring company is the same. Crown advances you more money and doesn’t charge anything for it.

Your finance depends on the customers' credit.

While the factoring company will not look at your credit, they will look at your customers. If they feel like they cannot trust the customer, they will not give you the money. They might also charge you a higher fee if they feel there is a risk attached to it. Always make sure to choose your customers wisely.

If you feel pressed for cash and there is no money in sight, or you want to know how your unpaid invoices could help you out of a tight spot, worry not. Our staff at Crowd Financial, LLC is willing to work with you and develop a solution that is beneficial to you. Reach us today at 281.646.2905 or check out our website here. You can also check out our blog to read more about factoring invoices and how it can benefit your business.

How Invoice Factoring Helps The Oil & Gas Industry

Are you tired of waiting for the account receivable to be paid back? Having to wait for funds can slow down your oil and gas business. It'll also halt your growth. Instead of waiting for the invoices to be paid, you can use oil and gas invoice factoring. You won't have to wait for your money to hit the account.

Numerous industries can benefit from invoice factoring, including businesses in pipeline construction, site preparation, exploration, surveying for oil and gas. Invoice factoring is an excellent solution if you have slow-paying customers. Here is how invoice factoring can be of help to your oil and gas business. 

What is Oil & Gas Invoice Factoring?

Let's begin by understanding invoice factoring. Invoice factoring is financing that enables business owners to use their invoices to get immediate cash. What happens in invoice factoring is that you'll sell your unpaid invoices at the factoring company and in return the factor provides funding against the accounts receivable.

Ways Invoice Factoring helps Oil and Gas Businesses

The growth in the oil and gas industry in the United States has led to both opportunities and challenges in the sector. Here are ways factoring can help companies in oil and gas to grow.

1. Fast funds

Instead of waiting for 30, 60, or 90 days for payment, you can receive payment for your services immediately thanks to invoice factoring. Once you have been approved, you'll have the cash in your bank account within 24 hours. With Crown Financial, you can get an advance of up to 25 million within 24 hours.

2. Easy setup

You'll need a lot of paperwork to get financial approval from a bank. Your business does not have that time. Most factoring companies allow you to set up your account and fund your receivables in a few days. Choosing a factoring company specializing in your industry, means you get a company that knows your business in and out. Therefore, the process becomes simpler. With Crown, there are no start-up costs, no contract, and no monthly minimum needed.

3. Debt-free

The good thing about factoring is that it doesn't leave you in debt. So, your business won't deal with debts when you use factoring to get funds. The factoring company buys your invoices and gives you the cash you need to run your business smoothly. With invoice factoring, even new oil and gas companies or those with low credit scores can qualify for the financing. You can get the capital you need to operate your company.

4. Back office services

Running an oil and gas company needs time and effort. You can reduce that time by using the back office service provided by invoice factoring companies. Factoring companies not only boost your cash flow but also give services such as checking payment progress, customer collections, managing records, and free credit analysis. A good factoring company offers services that streamline the collection process for your business but also build a strong relationship with your customers. 

5. Scalable funding

Timing matters a lot in the oil and gas sector. You must maintain enough cash flow to pay bills on time, invest in new equipment, meet payroll and cover day-to-day costs. The quick access and simple setup process ensure you have cash quickly, making factoring an excellent option. 

Crown Financial is an invoice factoring company that will provide you with the cash flow you need for your day-to-day operations. Whether you have a drilling exploration, oilfield hauling, pipeline construction, or any other business in the oil and gas industry, we can help. Get in touch with us today to learn more about our invoice factoring services.

5 Alternatives to PPP Loans for Fast Funding

The Paycheck Protection Program (PPP) is a business loan program intended to help businesses continue paying their employees amid the economic impact resulting from the COVID-19 pandemic. It was established through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in 2020 to provide cash flow assistance for eight weeks via loans and backed by the Small Business Administration (SBA) and fully guaranteed by the federal government.

Although PPP is a great program for businesses across the United States, some might miss out on this loan for different reasons, including ineligibility. If you don't meet PPP loan requirements or, for some reason, you are denied, you need to look for other ways to secure funding.

Below are the five alternatives to PPP loans for fast funding.

1. Term Loans  

Term loans are alternatives that provide clarity on the exact amount small business owners owe and how the repayment plan will work. A business can properly plan how to use the funds since there is a thorough discussion when signing the agreement. Term loans typically have fixed and lower interest rates since business owners prefer to repay them over a long period.

Most businesses prefer them for their unique flexibility, not seen in other types of funding. But besides the interest you pay on the debt, there could also be other fees, including an origination fee that adds to the cost.

2. Line of Credit  

Unlike traditional business loans, a line of credit gives more flexibility to small business owners. It provides them with funding up to a particular limit. There is an agreement that owners spend the money provided when they require them and only pay interest on the used amount. Unfortunately, the lender has a right to call any line of credit payable without warning, meaning you will have to settle the full balance.  

3. SBA Loans  

Small businesses can apply for SBA loan products such as Microloans and Express loans. Microloans have a limit of $50,000, but business owners might have to receive training to help uplift their business with the funds they receive.

For Express loans, a business gets credit decisions in 2-3 days, and the loan amount can go up to $350,000. Typically, they are overwritten and given by SBA's permitted lenders.

SBA loans are attractive due to their attractive rates similar to those of non-guaranteed loans. However, the spending restrictions for SBA loans inconvenience most small businesses.

4. Equipment Financing  

Equipment financing closely resembles the inventory financing lending program in structure and concept. However, you won't use your inventory as collateral but the equipment you purchase. This structure makes equipment financing easy to qualify. Unfortunately, it is restrictive in that it funds equipment; thus, you can't use the loan for other purposes.

5. Invoice Factoring

A slow collection process can greatly slow down a business despite the accounts receivable ledgers indicating sales. Slow pay customers might end up forcing you to lay off workers, turn down new projects, and delay tax payments and bills. Luckily, you can factor in your invoices, and you will receive the funds you need quickly. Factor your invoices and get the money you need within 1 business day.

Crown can help you with invoice factoring. For example, if your accounts receivables are $100,000, Crown Financial gives you 80% - 90% of the invoice amount as advance. After that, Crown deducts a factoring fee based on the amount of days it takes your customer to clear the invoice. That is, if your customers take a month (30 days) to pay, the factoring fee will be 2.8% of the outstanding invoice that is $2,800. When the invoice is fully settled, Crown gives you the reserve amount and deducts the factoring fee.

Invoice factoring is the best alternative to PPP loans since it gives you a healthy cash flow when you use it month to month. Besides, it won't cost you any monthly minimums, signup fees, or hidden charges when you work with Crown. Try out Crown's Invoice Factoring Calculator to check your rate in real-time.