![]() ![]() To this end, you may need to provide personal guarantee to repay the amount of invoice in the event of customer non-payment. Some factoring companies also allow you to replace the unpaid invoice with another receivable of equal or greater value.Īs an invoice seller may need to purchase back the invoice, factoring companies want to make sure that your company is in a good liquidity position and able to buy back. In recourse factoring, you are required to buy back an invoice if your customer fails to make payment on it. There are two types of invoice factoring: recourse factoring and non-recourse factoring. The remaining amount, which is $14,400 − 12,240 = $2,160, will be given to you only after your client settles the invoice. In other words, you will receive a total of $14,400 on this invoice.Īs an initial advance, the factoring company will give you $14,400 x 85% = $12,240 of cash upfront. The cost of capital is equal to the factor fee, which is $15,000 x 4% = $600. In this example, the invoice to be sold has a face value of $15,000. (c) Total to be received (invoice value after fee) To put words into numbers, below is a table summarizing the above-stated factoring arrangement: ![]() The factor rate is 4% and initial advance is 85% of invoice value after fee. Let’s say you have an outstanding invoice worth $15,000, which you decide to sell to a factoring company. To illustrate how invoice factoring works monetarily, an example of invoice factoring is explained below. ![]()
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