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Pay It Forward INC Invoicing, factoring, cash advance and more in Tennessee.

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What is invoice factoring and how much does it cost?

What is invoice factoring and how much does it cost?

What is invoice factoring?

Invoice factoring is a quick and easy way to pay it forward and turn your outstanding invoices into cash.
A form of asset-based financing, invoice factoring allows a company to sell its accounts receivable at a discount to a company that then collects the outstanding balance that can be used in a variety of industries.
Factoring is probably most common in the construction industry where payment cycles can stretch into months and selling outstanding invoices at a discount can help companies meet short-term obligations.
In real estate, invoice factoring is used to advance commissions. Real estate commission advances work the same way as invoice factoring, but are done for real estate agents who are awaiting commissions on pending or future sales.
In the healthcare industry, factoring is used to create liquidity when clients have outstanding invoices from the government or private insurance companies. There are certain restrictions because of federal privacy laws, but it can be used to combat long payment cycles.

How much does it cost?

When invoices are factored, companies offer a discount on the value of the asset then cost is added depending on the length of time it takes for the invoice to be paid.

Factoring cost generally depends on the discount rate, fees and amount of time it takes customers to pay balances. The discount rate is the percentage discount the factoring company offers to pay for outstanding debt and fees are. Rates are applied on a weekly or monthly basis. So the longer it takes for an invoice to be paid, the less it is worth.
For example, say a factor offers 90% of the value of an invoice and a 3% fee plus another 1% time-based fee.
If you factor $1,000. Then you receive the $9,000 upfront. When the invoice is paid, you are given the remaining $700, with a charged fee of 3% ($300) if the invoice is paid in 30 days. If the customer takes longer to pay you are charged an additional fee. Simple as that.

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