Invoice factoring rates: four charts, and one argues against us
Every figure on this page comes out of a cash flow model we wrote and can show you. Nothing here is a stock illustration.
The same invoice, two timelines
A fifty thousand dollar invoice on net 45, and the customer pays on day 38, which means they paid early. Even in the good case, waiting means you hold nothing for over a month and then get everything at once. That shape is what makes planning impossible.
Cash available to you from one $50,000 invoice
Net 45 terms, your customer pays on day 38
Waiting to get paid
Factoring with BZKNEES
Advance $45,000 on day 1 at a 90 percent advance. Reserve of $5,000 released on day 38 less the 3.5 percent fee of $1,750, so $3,250 comes back. Total received $48,250.
The orders you turn down are the real cost
This is a business with demand growing 15 percent a month, a 30 percent gross margin, sixteen thousand a month of fixed cost, and twenty thousand dollars in the bank. It is profitable and it is growing and it still cannot serve its own order book, because every dollar it earns is locked up in receivables for a month and a half before it can be spent again.
Over twelve months that business leaves 18 percent of its demand on the table. Not because it lost the sale on price or on quality, but because it could not buy the material in time.
Demand versus what the business can actually fund
Monthly revenue over 12 months, demand growing 15 percent per month
Month
See the exact numbers
| Month | Demand | Served, no factoring | Served, factoring | Missed |
|---|---|---|---|---|
| 1 | $90,000 | $90,000 | $90,000 | $0 |
| 2 | $103,500 | $101,877 | $103,500 | $1,623 |
| 3 | $119,025 | $105,714 | $119,025 | $13,311 |
| 4 | $136,879 | $122,681 | $136,879 | $14,198 |
| 5 | $157,411 | $128,163 | $157,411 | $29,248 |
| 6 | $181,022 | $152,402 | $181,022 | $28,620 |
| 7 | $208,175 | $160,233 | $208,175 | $47,942 |
| 8 | $239,402 | $194,860 | $239,402 | $44,542 |
| 9 | $275,312 | $206,047 | $275,312 | $69,265 |
| 10 | $316,609 | $255,514 | $316,609 | $61,095 |
| 11 | $364,100 | $271,496 | $364,100 | $92,604 |
| 12 | $418,715 | $342,163 | $418,715 | $76,552 |
Twelve month totals. Demand $2,610,150. Served without factoring $2,131,150, which is 82 percent. Served with factoring $2,610,150, which is 100 percent. Extra revenue $479,000. Extra gross profit at 30 percent margin $143,700. Fees paid $91,355. Net gain $52,345.
Read the net number, not the top line. The extra revenue is $479,000 but the fees are $91,355, so the actual gain is $52,345. That is still a good trade. It is not a 22x return and anybody showing you one is selling something.
Stability is worth more than growth
Seasonal business, twelve months, a slow spring and a strong fall. The dangerous month is not the slow one. It is month ten, when sales come roaring back and you have to buy all the material for a hundred and forty thousand dollars of orders while you are still waiting on collections from the slow months.
Without factoring, cash bottoms out at $31,700 against $30,000 of monthly payroll and overhead. That is one late paying customer away from a real problem. With factoring the low point is $159,000, which is more than five months of fixed cost in the bank.
Cash on hand across a seasonal year
Against a floor of one month of payroll and overhead, $30,000
Month
See the exact numbers
| Month | Without factoring | With factoring |
|---|---|---|
| 1 | $60,000 | $159,000 |
| 2 | $65,400 | $270,600 |
| 3 | $57,900 | $272,750 |
| 4 | $53,500 | $276,820 |
| 5 | $99,500 | $268,945 |
| 6 | $158,100 | $259,925 |
| 7 | $150,500 | $248,075 |
| 8 | $115,300 | $241,305 |
| 9 | $63,700 | $241,325 |
| 10 | $31,700 | $245,565 |
| 11 | $35,200 | $250,885 |
| 12 | $62,600 | $253,585 |
Sales swing from $62,000 to $140,000 per month. 30 percent gross margin, $22,000 payroll, $8,000 overhead, net 45 terms, $32,000 opening cash. Without factoring the low point is $31,700 in month 10, barely one month of fixed cost. With factoring it is $159,000.
The chart that tells you to say no
This is the one that argues against us, and it is the most useful chart on the page. At a 3.5 percent fee, the only question that matters is whether the cash lets you sell enough more to cover it. Your gross margin decides how much more that has to be.
At a 30 percent margin you need to sell about 12 percent more. At a 20 percent margin you need 17.5 percent more, which is a much harder bar. So the thinner your margin, the more unserved demand you need before this makes sense. If you cannot look at your pipeline and point at the orders you would take, do not sign anything.
Extra revenue needed for the fee to pay for itself
At a 3.5 percent discount fee, by your gross margin
Extra revenue required to cover a 3.5% fee
Break-even is the fee divided by the gross margin. At 3.5 percent and a 30 percent margin, 3.5 divided by 30 is 11.7 percent. Below that line factoring costs you money. Orange marks the margins where the bar is hardest to clear.
Want us to run these numbers on your business?
Send us a current accounts receivable aging and we will build the same model with your actual figures, and we will tell you if the answer is no.
BZKNEES FACTORING · B2B invoice factoring
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