Everyone is learning that factoring is a very lucrative business. It's beautiful because 1.5% is an egregious rake that doesn't sound like much...until you do the math.

If you normally wait 30 days for your money, but you opt for next day pay for a 1.5% charge on your $100 dollars in receivables, what's the real cost? The provider earns $1.50 for 29 days worth of floating money on your behalf (you'd get in in 30, but you opt for it tomorrow for $1.50).

Now, let's say the company flips the same $98.50 12 times per year. That's earnings of $18 on $98.50, or 18.25% on the company's money...not bad. But wait. What if the company has a strong cash position and can finance the $98.50 at prime, at 90% of receivables (cause that or better is what strong companies can get). Well, then the company needs to borrow $88.65 for the year, at 3.5% per year (prime rate). The company pays $2.66 per year in interest, out of the $18, to earn $15.34 on their initial 10% of the $98.50. So, 1.5% quick pay actually yields the company 15.34 / 9.85 or 156% on their money.

156% isn't a bad ROI.