How to Control Your Factoring Costs

PRN Funding’s fees are based on three main components: the time it takes to collect invoices, the volume of invoices factored, and the creditworthiness of your customers. Each of these issues is important in establishing how much you will pay to factor your invoices, but there are ways to control your costs.

 

Time

Part of the financial risk that PRN Funding incurs when it purchases an account receivable is related to the time it takes for a bill to be paid. Time is therefore an important commodity that can affect your fee: the longer an invoice is outstanding, the higher the fee. (A 60-day invoice would consequently cost more than a 30-day invoice.)

You can reduce your time-related costs in two key ways: 1) Factor customers that pay their bills quickly. 2) Send invoices to PRN only when you absolutely need money. By retaining your invoices for a while after you provide the services/goods to your customer, you will decrease the amount of time PRN owns the account receivable, which will decrease your fee. 

Volume
Volume refers to the total amount of money that is factored each month. Opposite from time, higher volume means lower fees, while lower volume means higher fees.  Eventually, you can lower your fees by factoring larger dollar amounts and larger invoices. Also, long-term relationships that result in factoring large cumulative dollars can result in lower fees.

 

Customer Creditworthiness
Unlike a bank loan, the ability to factor is dependent on your customer’s creditworthiness, not your own. Therefore, PRN Funding is assuming risk based on your customer’s credit history, which affects your fee; Marginal credit means higher fees, while good credit means lower fees. The most straightforward way to decrease your fee is to factor invoices due from customers with good credit history. While PRN will only factor customers who have acceptable credit, those who have better credit will be less expensive.

 

While other variables can affect the factoring fee, time, volume and credit are the most significant components that PRN Funding will evaluate. By carefully using our services you can minimize you costs.

 

3 Responses to “How to Control Your Factoring Costs”

  1. Factoring Help Says:

    what is marginal credit and how it will affect the trucking company in its factoring process?

  2. PRN Funding Factoring Specialist Says:

    Factoring Help:

    “Marginal Credit” is referring to less-than-perfect credit. Another way of wording this statement is to say that generally, a factoring company will charge higher fees if the account debtors (your customers) don’t have great credit.

    With that said, bad credit can be defined a number of different ways, depending on the industry. PRN Funding is not well-versed in common payment terms for the trucking industry, so I’m not able to answer your specific question. However, in the temporary nurse staffing industry, it’s perfectly common to see payment terms between 30-60 days. So if an account debtor is paying slower than 60 days, fees will likely be higher than if they were paying within 30 days.

    I hope this helps!

  3. Trucking Dude Says:

    ya..truely. factoring is a nice option for trucking industry.