But they need cash to pay their employees and suppliers, often before customers pay the invoices. Most companies don't stay with a factor as long as Recon Services has, says Jack Stieber, a partner at American Receivable. Businesses that get their payments right away, like restaurants and retail stores, don't typically use factoring. However, a wide range of companies, from manufacturers to consultants, can benefit from this technique. Understand the costs.
Factoring can be an expensive source of financing.
You'll get most of the rest after your customer pays the bill. A factor typically charges a 2 to 6 percent fee, called a discount fee, on an invoice due in 30 days. The lower the amount of receivables you sell, the higher the rate. Some factors may also decide to tack on additional charges, such as audit fees, collateral-maintenance fees and upfront points. Understand the basis on which the factor buys your receivables.