Quote:
Originally Posted by merrick4
Quote:
Originally Posted by Dispatch_This
Factoring all your frieght bills through non-recourse could easily cost you $15-20,000 a year right off your bottom line. 5% on each invoice works out to an APR of around 72%. That's insane.
Dispatch_This, could you help me figure this out. (Or no_worries I know he's good with this too)
For instance if the factor fee is 2.5% what would be the APR and how do you figure this out?
Also so you are paying like 8% on a piece of equipment, would it be better to factor and get the cash and then just pay cash for the equipment?
Assuming the fee is 2.5% on "30 days out" (normal terms) all you have to is multiply 2.5 x 12 months.the APR is 30% in this case.
Non-recourse at 5% would be a 60% APR based on 30 days out.
If you want to work up a business plan that estimates how much it would cost you to factor, it gets a little more complicated.
The formula would look like this:
Factoring rate x (365/ "days out" agreement) x what your average receivables balance would be if you DIDN'T factor.
It's simpler than it sounds.
A typical one truck independent might have $25,000 out on average, if he didn't factor.
Using your terms 2.5% x 12= 30% x 25,000= $7500 a year in factoring costs. Non-recourse at 5% would be $15,000 a year. Not a good deal either way!
Hope this helps.