Factoring Companies

Except it's not a fee, it's a short term loan. Usually 30 days.
3% at one month is the same as 36% a year.

 

Well no because some factoring companies buy the invoices outright. There is no "term"

 

Very very few to zero buy the invoice outright. The vast majority it's a loan. Oh the advertising makes it look like they are buying the invoice, but read the fine print. If they don't get paid you owe them the money. That's a loan.

 

I understand but it does not operate like a traditional loan. Interest does not accrue. It does not accrue month to month. In fact there is no interest.

My factoring company is a one time 3% fee. If the company doesn't pay after 90 days I am suppose to pay them back based on the contract. It does not keep accruing 3% every month. It is a fee, not interest.

Money owed does not change with time. Therefore it can't be said to be 36% interest per year.

 

At this point of time we have people paying the trucking companies $3.00 a gallon to work for them.
That's assuming a 70%/30% split on an all in contract and $2.00 a litre.
Same with tolls etc. 30% surcharge.
Is that 360% P A? [NO].

 

I love this lol

 

Ok ok, gather round.

so let’s use the previous example of $10k a month in invoices at 3% factoring. That’s $300 a month in factoring costs. $300 x 12 = $3600 a year.

3% of $120,000 is $3600.

In most basic terms, 3% a month is exactly equal to 36% annually.

When you contract with a factoring company, they go to the bank and get a loan off your contract and pay annual percentage rates, profiting purely off the inflated interest rates they are receiving from you. Think about that. This is a business paying their employees, rent, all overhead and growing in wealth solely off the 3% interest you think nothing of. Think about that a sec.

Pretty smart, huh.

And factoring companies are geniuses (with genius lawyers) about making it very difficult severing ties with them once you no longer need their services.

Basically, one factors because they can’t support the business for 30-60 days waiting to get paid.

Two months of $10k equals $20,000. Get a loan. Even at 10% lol. But Let’s call it $24k to support you for those first couple of months at our same 3%.

$24000 x 3% = $720. But you pay that annual percentage monthly, so you divide by 12. $720 / 12 = $60 Let’s call it a 12 month loan for simplicity. First bank statement comes the first month, you owe $60 in interest plus the principal ($2000) with a new total of $22k. Next month the 3% is recalculated on the new principal amount, and you’ll actually end up paying less than $720 in interest. And the best part, a factoring company doesn’t own your ###!!

This game we play is a nickel and dime machine. You’re learning to be smart and picking them up all day long and loving life, or hemorrhaging them all day long and bleeding to death without even knowing it.

 

And I get it. It’s hard for some people to get a loan, and starting up can be a struggle. But just maybe, you aren’t ready to start up.

I know factoring can be an attractive option for those starting out. Just understand how much of your soul you’re selling to the devil, and have a plan to get it back.

Some ungodly high percentage of all new business start ups fail in the first year.

If you’re starting from the get go behind the 8ball…

 

The #1 reason businesses fail in the first year or 2 is under-capitalized start ups.