How to manage your accounts grace period Factoring Cost

Refine your accounts receivable factoring cost is based on three main factors – the time it takes to collect accounts, volume accounts calculated, and financial customers. Each of these issues is important to establish how much you pay to factor accounts, but there are ways to control costs.

Time

Part of the financial risk that strains when buying accounts receivable is related to the time it takes for a bill to pay. Time is an important commodity that can affect the charge: the longer an account is outstanding, the higher the fee. (A 60-day accounts would therefore cost more than 30 days of invoice.) You can reduce the time-related costs in two key ways: 1) Factor customers who pay their bills quickly. 2) Send invoices only when you absolutely need the money. By keeping the bills for a while after you provide services / products to your customers, you will reduce the amount of time aspects of company account receivable, which will lower the fee.

Volume

Volume refers to the total amount of money that is calculated every month. Opposite of time, higher volume means lower fee, but lower volumes means higher fees. Finally, you can reduce your fees by factors bigger dollar amounts and larger accounts. Also, long-term relationships that lead factoring large cumulative dollar can lead to lower fees.

Customer credit

Unlike a bank loan, the ability to factor depends on the creditworthiness of your customers, not your own. The factoring company is assuming the risk based on the credit history of customers, which affects fee; poor credit means higher fees, but good credit means lower fees. The simple way to reduce the charge to factor accounts due from customers with good credit history. While most aspects of business will only factor customers who have acceptable credit, those with better credit will be cheaper. While other variables may affect Factoring fee, time, volume and credit are the most important factors factoring company will evaluate. By carefully using accounts receivable factoring services you can reduce costs.