5 Steps to Factoring Invoices

5 Steps to Factoring Invoices

Selling or factoring invoices is very straight forward with 5 main steps:

Step 1 – Invoice your customer for goods sold or services completed.

Step 2 – Submit the invoice to the Factoring Company or Factor.

Step 3 – Factor provides an immediate advance on approved customers.

Step 4 – Factor receives payment on the invoice directly from your customer.

Step 5 – Factor releases the reserve balance to your business less the factoring fee.

Accounts Receivable Factoring Example

Here is an example of how the numbers might work on a factoring transaction:

• $10,000 – Invoice Amount Customer owes Business
• $ 9,000 – Advance Rate Paid to Business (Assumes 90%)
• $ 1,000 – Reserve Held By Factor (Assumes 10%)

Invoice Paid In 30 days

• <$250> – Fee Deducted from Reserve (Assumes 2.5%)
• $   750 – Balance of Reserve Paid to Business
• $9,750 – Total Amount Received by Business

The amount of the advance, reserve, and factoring fee can vary by industry, customer strength, and how long it takes the customer to pay the invoice.

Some factoring companies might charge a small one-time set up fee to the business upon acceptance.  Others will waive the set-up fee depending on the volume and length of the factoring contract. While the assumptions may vary from the example, they will always be clearly spelled out upfront in the proposal and agreement between your business and the factoring company.

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