Working Capital

Factoring? You’re Losing Money by Not Using Early Payments

November 5, 2018
The C2FO Team
factoring losing money

Getting your invoices paid early can provide significant savings on the fees and interest your factor charges you.

Unfortunately, many companies are under the impression that they can’t take advantage of the early payment programs offered by their customers if they have a factoring agreement in place.

That’s simply not true.

Even if you’re factoring your invoices, you can likely still have your customers pay them early using the C2FO platform—which will save you money and increase available cash flow at the same time.  

How early payment discounts through C2FO can actually save you money

Let’s say you have a $100,000 invoice due in 60 days with your largest customer.

Your customer has made those invoices available for early payment, but you are currently factoring those same invoices.

You have two options:

1. Have your factor advance you the funds  

Your factor will advance you a portion of the outstanding invoice (based on your advance rate) and then collect payment from your customer in 60 days.

2. Have the invoice paid early by your customer

The full amount of your invoice will be paid, usually within 24 hours (when using C2FO).

Since you are factoring the invoice, payment will still go to your factor, but you will save money:

Initial factor feeAdditional factor feesEarly Payment discountTotal costTotal amount funded
Option 1: Factor only1$2000$2250$0$4250$80,000
Option 2: Early payment2$2000$0$1000*$3000$97,000

*Cost based on the average C2FO early payment offer. Costs may vary with other early payment options.

Here’s why you save: Factors charge part of their fees based on the amount of time the invoice is outstanding, and those fees are almost always more expensive than the discounts your customer will accept to pay your invoices early.

In this example, you’re shortening the amount of time the invoice is outstanding, so you avoid $2250 in additional factoring fees in exchange for the $1000 it costs to have your customer pay the invoice early—a savings of $1250!

Not only that, but since there is no advance rate with early payment, you receive $17,000 more up front—the full $100,000 less the cost of the funds.

How early payments boost available cash flow

Factors usually advance a portion of outstanding invoices (this is often called the “advance rate”) and pay you the remainder only after they get paid the full amount.

If you have $100,000 in total invoices outstanding and your factor has an advance rate of 80%, your factor will advance $80,000 of the entire $100,000 upfront. 

The remaining $20,000 will be released, minus their fees, when your customer pays the factor on the original due date.

Rather than wait for the additional $20,000, you can have your customer pay that invoice early, which will release your remaining funds and give you an immediate boost in cash flow.

What to do next

The first step is to understand the nature of your factoring agreement. Pay special attention to the fee structure. Does your factor calculate fees and interest on a daily, weekly, or monthly basis?

If your factor charges fees on a weekly basis, for example, then you have more of an opportunity to save money than if they charge you at the beginning of each month for the entire 30-day period.

Once you’ve reviewed your agreement, do the math. When you compare the cost of early payment with the fees and interest you’d save by having the invoice paid ahead of schedule, does it make sense?

If you’re already a registered user with C2FO, you can log in here to check your current costs for early payment. Need help? Schedule a demo with your account manager.

Not sure which of your customers offer an early payment program? Find your customers.


1 Assumes a factoring agreement with a 2% fee for the first 30 days, 0.75% for each additional 10 days, and an 80% advance rate. $100,000 x 2% + $100,000 x 0.75% x 3 (10-day periods) = $4250
2 Assumes 1% discount offered for 60 days (6% APR) through C2FO. $100,000 x 2% + $100,000 x 1% = $3000

Want to take control of your cash flow?

Early payment through C2FO can help.

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