As we’ve mentioned, invoice financing can be an expensive way to receive funding for your business. But it’s essentially the cost of having cash on hand now, instead of later.

Here’s a snapshot into what the cost structure would look like.

Financing & Fees of Accounts Receivable Financing

Let’s say you have a $100K invoice with 30-day terms.

A financing company might immediately advance you 85% of that amount—$85K—and hold $15K in reserve.

Your customer then pays that invoice 2 weeks later. After subtracting the 3% processing fee of $3K, the financing company keeps its factoring fee—1% per week, which in this example is 2% or $2K—and gives you the $10K left over.

Why is Account Receivable Factoring Worth the Cost?

You might be feeling like $5K is a steep price to pay—but that all depends on your business’s financials.

If you needed money to make payroll a week after sending out that invoice, then your accounts receivable financing fees don’t seem too bad after all.

If you have an invoice, that is NET 30, 60 or even 90 days – getting funds immediately could be well worth the cost. 

Your business’s financial situation might seriously benefit from extra cash flow—so capital right away could definitely outweigh the negative of those fees.