[Kevin Henry-Seacoast]

Need some advice on factoring.

Have a deal right now with a factor that is getting ready to close.

Here are the terms some of the terms

80% advance rate

1M in volume for one year

500K Facility limit.

3.75% Factor fee for 0-60 days
4.75 % 61-75

He has about 900K in AR and he owes around 300K in MCA's.The factor is going to pay off the MCA's.

He wants to factor all of his AR.

My question is, how does the funding work? Will they fund him a large sum upfront or will it be in batches based on his invoices. The rep I am working with is not really explaining things clearly.

I've heard of brokers that charge fees outside as well.Is ok to charge fees outside of what the factor is paying? If so how much on a transaction this size? They are paying 10% of the fees residually.

Also Assuming he does 1M worth of business in a year and they charge 3.75 and his debtors pay on time... 1M x 3.75=$37,500? Is that the cost of funds?(excluding any fees) does that mean commission would be 10% of the $37,500=$3,750 divide by 12=312.50 a month?

Hoping to get some good feedback here.

Hi Bob,

You need to determine a few things before figuring out the commissions and if this is a good deal for your client.
-How do customers pay? If they are paying in less than 60 days then they are being charged for days they don't need.
-What is the cost of funds for the factor. If the cost of funds are high, you make less. Assuming their cost of funds is somewhere around 6% the commissions for the deal would be somewhere around $3795 for the year. A lesser cost of funds drives the commissions higher.
-Are they charging a line fee and do you participate in the line fee?


Just because someone charges a higher rate does not mean the referral partner makes more.

[Mynameisbob]

Hi Bob,

You need to determine a few things before figuring out the commissions and if this is a good deal for your client.
-How do customers pay? If they are paying in less than 60 days then they are being charged for days they don't need.
-What is the cost of funds for the factor. If the cost of funds are high, you make less. Assuming their cost of funds is somewhere around 6% the commissions for the deal would be somewhere around $3795 for the year. A lesser cost of funds drives the commissions higher.
-Are they charging a line fee and do you participate in the line fee?


Just because someone charges a higher rate does not mean the referral partner makes more.

Hi Kevin, thanks for the response.

His customers pay anywhere between 45-60 days sometime they are late.I had the guy get credit insurance on the accounts receivable because the factor wouldn't approve the single account for more than 100K.

How do I figure out the cost of funds? Do they tell me that?

What is a line fee?

Thanks for the feedback, this is what makes this forum great!