How do they work out the fees and upfront money?

There are several things they look at:

  The fees are typically between 2-5 % of the total invoice. So, if you have a $1,000 invoice, a 3% fee would be $30.

What does 'advance' mean?

That's the money you get straight away when they buy your invoice. When your customer pays the invoice, you'll get the rest of the money. The upfront money is usually 60-95% of the total invoice. For example, with an 80% advance on a $1,000 invoice, you'd get $800 upfront. Once your customer pays, you'd get the remaining $200 minus the fee.

Why is selling invoices more expensive than a bank loan?

Even though selling your invoices can look pricier than a bank loan at first, there are a few things to keep in mind.

Isn't 3% a month too high? That's 36% a year!

Sure, the numbers can seem big if you compare them to a yearly bank interest rate. But it's not the same. Bank loans are one-time deals with yearly interest. We're buying your invoices at a reduced rate, which is a different thing. Plus, we keep giving you money, unlike a bank that only lends you money once.

For example, let's say you get a $100,000 loan from a bank with 12% interest. You'll get $100,000 once and have to pay $1,000 every month in interest. But, you'll still owe the bank $100,000. With us, if you sell $100,000 worth of invoices every month for a year, you'll get $1.2 million. If we charge 3% per month, you'll pay us $36,000 in a year. But, at the end of the year, you won't owe us anything.

My business only makes 3% profit. How can I afford to pay you 3%?

If your business only makes a 3% net profit, selling your invoices can actually help. By getting money faster, you can do more business without your costs going up too much. So, even though you'll pay us, your profits should go up because you'll be doing more business.

Let's do some math to show what could happen if you double your sales.

Without Selling Invoices:
Monthly Sales: $50,000
Cost of Goods Sold: $30,000 (60% of Sales)
Monthly Profit: $20,000 (40% of Sales)
Fixed Costs: $10,000
Variable Costs: $8,500 (17% of Sales)
No Invoice Sale Fee
Total Costs: $18,500 (37% of Sales)
Monthly Net Profit: $1,500 (3% of Sales)

With Selling Invoices:
Monthly Sales: $100,000
Cost of Goods Sold: $60,000 (60% of Sales)
Monthly Profit: $40,000 (40% of Sales)
Fixed Costs: $10,000
Variable Costs: $17,000 (17% of Sales)
Invoice Sale Fee: $3,000 (3% Fee)
Total Costs: $30,000 (30% of Sales)
Monthly Net Profit: $10,000 (10% of Sales)

But don't I only get 80% of my money upfront?

Let's say you sell $100,000 worth of invoices in January and get $80,000 upfront. You'll also pay a 3% fee ($3,000) and a 17% reserve ($17,000). Then, in February, you sell another $100,000 worth of invoices. You'll get another $80,000 upfront, plus the $17,000 reserve from January (assuming your customers pay in 30 days). So, in February, you actually get 97% of your money, not 80%. After the first month, you'll basically be getting 97% of your cash flow.

What if my customers take more than 30 days to pay?

You have a few options if your customers take longer to pay. You could wait 30 days before selling those invoices, so you only pay the 30-day fee. Or, you could sell the invoices of customers who pay faster first to get the cash you need.