Profit A Measure For Success

For invoice factoring to be realistic as an ongoing working capital solution, you must know the effective profit margin for the work being done. It’s always important to know what activities in a business yield the best margins, but for accounts receivable financing to be of any help the gross profit margin has to be greater than 20%. This does not mean to expect invoice factoring to cost this much, it is only a concern of the factoring company to insure that beyond the costs associated with factoring, the client will still be making a profit. The margin will allow for incidental problem accounts or extended payment terms. In some cases a client will offer 90 day payment terms. The funds in use interest rate will eat up part of the profit. Unless the factoring company feels confident the client will still be making a healthy profit, the factor will pass on the transaction. So invoice factoring will usually not work for very low margin high volume sales.