Many prospective clients mistakenly focus their discussions on the rate alone when they are looking for finance, rather than focusing on the total cost of the service and more importantly the value of the service.
It’s easy to become confused because with most business loans or lines of credit, the finance rate applies to the amount that you borrow. However, factoring or debtor finance transactions are structured differently because the factor does not advance the entire amount immediately as the transaction is broken into two parts.
1. You get the first instalment (the advance) as soon as you invoice a client.
2. You get the remaining funds once your client pays.
A fee is then determined on the total value of the invoice and not just on the advance.
Calculating the cost per dollar is the most efficient way to work out the true cost of your factoring finance. You can do this by dividing the fee by the advance amount and often this can result in a huge difference and save you a lot of money.
You then have to compare that to the value of that funding to your business.
What can you do with that funding and what will it earn in your business?
In most cases it is many time more that the cost!
Remember what Warren Buffet often says, “price is what you pay….. value is what you get”