100% advance rate – A 100% factoring advance rate is means that if you factor a $100 dollar invoice you get $100 advance. Obviously under this factoring example there is no factoring reserve amount held back to protect the factoring company in the case of non-payment or for the factoring company to take their fee from. Under 100% a factoring company usually takes a portion if not all of their factoring fee out up front. It is also common for a factoring company to allow for a special reserve account that builds up over time. Under this factoring fee model the actual factoring advance starts out very high depending on the fees take up out front but lowers over time as the special reserve account builds up. If you see an invoice factoring offer for a 100% advance rate you will want to be very well versed with the factoring contract to make sure you know what the factoring fees are, when they are paid and if there is any special reserve. If the factoring contract does provide for a special reserve you will want to know:
- How much it is?
- Is there is a dollar amount cap on it?
- If money is ever released from that special reserve and under what circumstances?
- Will you see it on your reports?
Very high advance rates are often too good to be true and are usually sales smoke and mirrors to make you think you are getting a great deal. Sometimes you actually are getting a great deal.
