What is Flat Fee Factoring?
3 Things You Need To Know
Flat fee factoring refers to a company that factors invoices for a fixed fee.
The factoring company pays the invoice within 90 days. Flat fee factoring is a great option for many companies because the client agrees to a fixed fee or percentage (%) each time an invoice will be factored. This allows business owners to calculate how much expense factoring will cost. This gives them peace of mind and predictability in financing costs.
How does it work for your business (Flat fee factoring example)
What does flat fee factoring look like in practice? Here’s an example. ABC Trucking Company, amongst other companies, runs loads for XYZ Manufacturing. Their invoices are to be sold to a factoring firm to generate cash flow. They would prefer to only pay a 3% flat fee regardless of how long it takes for the customer to pay the invoices. They will still be able to make a profit and grow their business.
After they sign a contract, the factoring agency will advance funds to their outstanding invoices. ABC Trucking will only pay a flat fee of 3% when the customer pays their invoices.
Although this is the most reliable and secure way to sign up for a factoring company, it may not be the best. In certain situations, a tiered factoring rate can prove to be more economical.
You may be able to save money by using other factoring fee structures
Flat fee factoring services can be understood and are simple to use. It is not always the best cost-effective fee structure. This is an example of a tiered fees structure that can significantly reduce the cost for businesses factoring receivables. This is what it looks like. ABC Staffing offers temporary clerical staff and administrative support to its customers. Their customers usually pay in 30 days. Only a few clients pay later. ABC staffing is in dire need of funding their payroll. They are considering factoring. They have seen rapid growth and believe it will continue. This solution is flexible and scalable.