The true cost of factoring.

 The factor pays the invoice owner from 80% to 100% of the invoice value in the first tranche, immediately after its issuance, having deducted his commission. The rest of the amount due, less the factor fee, is transferred to the factor after the invoice owner receives the payment from the debtor.

  A mistake made by potential clients of the factoring agreement is to focus only on the commission itself, while omitting the total cost of the service.

 However, the interest rate is usually based on the total value of the invoice, not just the first tranche.

  Usually, the cost of factoring is higher when the down payment is lower and the payment term is longer . 

 The factoring service is determined individually, therefore its final costs may differ - everything depends, among others, on the number of financed invoices, their size, risk borne by the factor or the quality of receivables. Factoring costs include the following variables:

  • interest,
  • preparation commission - from 0.1-3 percent the amount of the granted debt limit,
  • administrative commission,
  • commission del credere, i.e. commission for taking over the insolvency risk factor by the factor - 0.1–1.5 percent. value of purchased debts,
  • margin on additional services - 0.3–4 percent.

 The factoring company can only charge two fees - interest and commission. However, this does not mean that its services will be cheaper. It's just that the costs will be distributed differently. In this case, the commission will consist of: the costs of the preparation and administrative commission, del credere and the margin for additional services.

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