Replies to post #306261 on Spongetech Delivery Systems, Inc. (fka SPNGQ)

[FMorgan]

Christy, that sounds correct but how can it be? Since they are paying $4000 per month then when the accounts receivables increases to $200000 the cost for factoring would have to be $8000 per month to make your figures work.

[1jk1]

In laymen’s terms Invoice Factoring is the process where a company is pre paid for their sales invoices from an invoice factoring company. This allows a company to increase their working capital and maximise on their cash flow.

Invoice factoring companies make their money by charging a percentage of the amount being factored. For example, lets say a company issues $100 invoice, they may only get $95 from the factoring company with the remaining $5 being the commission for the service. I hope this helps! (Make it simple not compound) glta

[FMorgan]

Lets take the same effect in a different route.

If a company offers net less 5% for payment in 30 day and the buyer decides to pay in 60 for the full amount, what is the cost to the buyer over the course of a year for not taking the discount?

If they take the discount by paying the net less 5% in 30 days, how much has it cost the manufacturer.

[pantherj]

The key to the interest rate is the term, 30, 60, 90 days. In the cases of factoring I'm familiar with, not only is there the initial discount, but any money received begins bearing additional interest if not paid back in full in the agreed time frame.

As an example, business A agrees to factor $100,000.00 at 4% and receives $96,000.00. If they pay it back in 30 days, they pay $100,000.00, which is 4.1667%/mo or 50% APR. However, if they do not, the unpaid portion then bears an additional interest rate of 18% per annum until paid in full. I've seen small businesses, particularly home remodelers, buried by those terms.