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Factoring Rates
You'll find PCG's rates to be extremely competitive and PCG, like most factors, doesn't have a "one-size-fits-all" approach when deciding rates for new clients. Once PCG has reviewed your application, and before a contract is signed, you will be given a written proposal establishing the deal terms, including the rate. The following are some of the variables PCG analyzes when determining rates:
- The number and dollar amount of invoices to be sold. A higher combined monthly dollar volume typically warrants a lower rate while a proportionately higher number of invoices at the same dollar volume or less requires more transaction processing resulting in higher rates.
- The average invoice size. Again, processing costs are a consideration. In a $3,000 transaction, more time is required to process thirty-$100 invoices than three-$1,000 invoices.
- Creditworthiness of your customers. Effective risk management is key to successful factoring. The risk is lessened on invoices billed to larger companies having strong financial histories than with small companies with marginal credit. Rates are set accordingly.
- Payment terms and average days to pay. Contrary to common belief, Factors actually want your customers to pay on a timely basis so the fees can be collected and their money can be put to work again. If you provide extended terms or your customers fail to pay within established terms, the factor's money is employed longer resulting in higher rates to the client.
Standard practice is to "annualize" rates in financial transactions
meaning a factoring rate of 3% per month equates to an 36% APR.
However, factors don't loan money, they purchase receivables
at a discount through a short term transaction. A bank loaning $100,000
advances funds once at loan closing and is normally well secured. The
factor will both advance and collect $100,000 repetitively on the
client's outstanding accounts receivable, all the while maintaining
credit and account management oversight and reporting. Factoring
rates, generally are quoted as a single number, actually have two
components: the cost involved in servicing all facets of the overall
account and the factor's money cost. The one year bank loan at 12% APR
equates to $1,000 monthly interest on a single $100,000 advance. A
factor advancing $100,000 per month extends $1.2 million ($100,000
times 12) over the same one year period. At a 3% per monthly rate, the
client is paying $3,000 ($100,000 times 3%) per month or $36,000
annually for the use of $1.2 million. A one year loan of $1.2 million
at the bank's 12% rate would cost $144,000 in interest.