|
- Invoice Advance percentage: This is the percentage of the invoice that is advanced to you. You would think that this is pretty straight forward, wouldn't you? Unfortunately it isn't. Your advance percentage is typically advertised as being between 70 to 100% of the gross invoice. However, I have yet to find a payroll funding company that actually funds 100% of the invoice without keeping an additional cash reserve. If a cash reserve is held, the invoice isn't funded 100%. There are a few things to think about with your advance percentage:
- When do you receive the money for the unfunded portion of the invoice? Do you receive it when the invoice is paid? Is it held for 10 days until the check is cleared? Is it kept in a cash reserve indefinitely? These things can affect your cash flow dramatically.
- Do you get charged for taking out the monies that were not funded initially? Some companies will tell you that they are only charging you for the money that you borrow (your 70-100% advance), but then when an invoice is paid, you have to pay to get the excess money out as part of your advance. That means you are still paying on the gross amount of the invoices regardless of what your advance percentage is.
- Advance percentages aren't everything. You may think that someone selling a 100% advance is the best route to go. However, typically you will pay higher rates for higher advance percentages. In addition, once your receivables start to come in, if you are working with a company like Networkers Funding that gives you credit for the unadvanced portion of the receivables as they are paid, your cash flow will reflect a 100% advance after approximately the first 4-6 week period. Some weeks may be higher, some lower, but if you can make it through your first 4-6 weeks of funding at the lower advance percentage (the average time it takes your receivables to start to come in), you can save money on your receivables in the long run. For example:
| Week # |
Weekly Billing |
Advance Percentage |
Weekly Advance |
Cash Receipts |
Receivable not Advanced |
Cash Available |
| 1 |
$50,000 |
100% |
$50,000 |
$0.00 |
$0.00 |
$50,000 |
| $50,000 |
90% |
$45,000 |
$0.00 |
$0.00 |
$45,000 |
| $50,000 |
80% |
$40,000 |
$0.00 |
$0.00 |
$40,000 |
| |
| 4-half the AR start to come in |
$50,000 |
100% |
$50,000 |
$25,000 |
$0.00 |
$50,000 |
| $50,000 |
90% |
$45,000 |
$25,000 |
$2,500 |
$47,500 |
| $50,000 |
80% |
$40,000 |
$25,000 |
$5,000 |
$45,000 |
| |
| 6-half the AR from week 1 & 2 |
$50,000 |
100% |
$50,000 |
$50,000 |
$0.00 |
$50,000 |
| $50,000 |
90% |
$45,000 |
$50,000 |
$5,000 |
$50,000 |
| $50,000 |
80% |
$40,000 |
$50,000 |
$10,000 |
$50,000 |
| |
| 7-half the AR from week 2 & 3 |
$50,000 |
100% |
$50,000 |
$50,000 |
$0.00 |
$50,000 |
| $50,000 |
90% |
$45,000 |
$50,000 |
$5,000 |
$50,000 |
| $50,000 |
80% |
$40,000 |
$50,000 |
$10,000 |
$50,000 |
|
|
|
