Factoring isn’t only for businesses that are in financial trouble. Factoring can be a valuable service for start-up companies and businesses that are simply growing fast. However, discount factoring can be a bit confusing at times. The fees that are shown aren’t typically going to be the final fees calculated for your company. Why is that, and what should you look for in discount factoring? Continue reading for hidden facts about discount factoring.
A Flat Discount
You may be offered a flat discount for the first 30 days, and then an adjusted discount for every 30 days following that initial period. Typically, this will be charged on the gross amount of factored receivables. This could potentially be a good deal, but you need to remember that a flat discount may end after a certain period of time, or at least be reduced after an initial introductory period. Much like cable providers will offer an introductory discount, some factoring companies will do the same thing. If you’re only looking to use factoring for a short period of time, this might be a good deal, but for long-term service this might not be your best option.
The Prime Rate
In the US banking system, the prime rate is the short-term interest rate used. This is a variable rate, so obviously, it will vary from time to time. The prime rate may be added to a flat invoice discount fee structure. You may also receive a prime rate plus margin offer. This will be the prime rate plus the margin (a stated percentage), which will be calculated together annually.
If you’re planning on using a factoring company for a longer period of time, this could be a better option for you. It’s important to look at the long-term benefits of all offers before settling on a given discount.
The Final Verdict
No factoring company can give you real numbers until they’ve assessed your company and your clients. Rates will largely depend on risk factors, volume, and capital. For discount factoring in Douglasville, GA, it’s always recommended that you shop around and look for a factoring company that’s excited to work with you and has experience with businesses like yours. The discount likely won’t matter nearly as much as the dependability and professionalism of your factoring partner.