Factor Funding.  Some of the secrets part 7.  How we come up with the pricing we quote?

There is actually a method to the way factoring companies choose to quote pricing.  Each company may be a little different but they generally use the same methodology.  Our firm focuses on the following three criteria in determining how much to quote our prospective clients for factor funding:

1. Volume - The most important criteria in determining what we will charge our clients is the amount of business we expect to do with them.  Establishing and servicing a client has certain fixed costs for the factoring company and as you would expect the more volume we can spread these fixed costs across the cheaper our pricing can be.  In general, the cost to a factoring company to bring on a new client can be any where from $500 dollars to a thousand dollars.  How expensive it is generally relates to how complicated the corporate structure of our client is.  In addition to the fixed costs associated with bringing on a new factoring client, there are also fixed costs for the ongoing administration of an account.  If a client is selling us $10,000 a month in invoices or $500,000 a month in invoices, the costs of administrating the account don't change that much (especially when taking into account the individual invoice size and volume - see #3 below).
2. Credit Quality - Just like all business, our business has certain risk vs. reward hurdles that we have to meet.  The longer a company has been in business, the better the credit quality of their customers, and the simplicity of their relationships with their customers are elements that create the overall risk profile for the invoice discounting company.  The less the overall risk, the cheaper we can price for our clients.
3. Work - Two different companies could sell us $100,000 a month in sales but depending on the number of invoices and customers that comprise that $100,000 the amount of work to administer the account can be dramatically different.  The easier it is for the factoring company to administer the day to day relationship with their client the cheaper the pricing.