The NOA is sent by the factor, and will usually require the customer to sign as an acknowledgment. When you enter into a factoring agreement, your customer will receive a notice of assignment which alerts them that the right to collect payments has been passed to the factoring company. In a factoring agreement, the factor holds claims to the payment from your customer. You’ll need to specify which accounts receivables you want to factor in the sales of purchase and receivables section of the contract. You may not want to sell all of your invoices. Remember that in a factoring agreement, you sell accounts receivables to the factoring company. If your business factors a $10,000 invoice every month for one year at a 2% rate, you would collect $120,000 in advanced rates, and the factoring company would collect $2,400 in factoring fees. For example, a 2% rate on a $100,000 invoice would be purchased for $98,000. You can calculate a factoring fee by applying the factoring rate to the face value of the invoice. Generally, rates fall between 0.55% and 3.5%. Invoices for larger amounts usually have smaller factoring fees, but there are many other variables that impact the rate, including your sales volume and your customer’s creditworthiness. The factoring fee – also known as the discount rate – is the dollar value that the factoring company takes out of the payment of your invoice. Related: Invoice Factoring Rates, Factoring Fees & Costs Factoring Fee The advance rate you receive depends on a number of factors, including the invoice value, your industry, and your creditworthiness. If your full invoice amount is $2,000, you would receive between $1,400 and $1,900 upfront. Rather, the advance rate usually falls between 70% and 95% of the invoice amount. In most cases, you won’t receive the full amount of the invoice upfront. This rate is the percentage of the invoice that the factor will pay to your business once the invoice is sold. Here are some important terms that you’ll come across: Advance Rate It’s crucial to read and understand your entire factoring agreement before signing. Related: Key Differences Between Recourse and Non-Recourse Factoring Factoring Agreement Terms Non-recourse factoring will generally result in slightly higher factoring fees. Non-recourse factoring: Your business will not be liable for the outstanding balance of an invoice. This is the most common type of factoring agreement.
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