What Are the Benefits of Tier-Based Funding Compared to Using Daily Rates?

blog communication illustration

When it comes time to secure funding for your recruiting or staffing firm, banks and other funding companies may not be your best choice. With the interest rates and fees involved with bank and other funding company loans, you often end up paying more in interest than anticipated. By opting for tier-based funding from Madison Resources, you gain additional value and predictability to help plan for future budgeting needs.

Here are some reasons you want to opt for tier-based funding from Madison Resources rather than a business loan from elsewhere.

Daily Rate

A daily rate is what most funding companies charge for asset-based loans. A daily rate is what is charged above and beyond your advance rate.  The advance rate is charged on day one and typically covers 30 to 50 days. After that, interest is charged on a daily basis.  This means that the funding company charges a flat fee on the initial invoice balance followed by a daily rate after the 30 days until the invoice balance is paid in full.  A partial payment on an invoice does not stop the daily rate from being charged and it continues to be charged on the original invoice balance.  Unless your customer pays well within 30 days, and very few do, the advance rate combined with a daily rate is typically a much higher amount than you would pay with a flat fee. With this type of arrangement, your customer controls your fee.  This makes predicting cash flow and budgeting significantly challenging and, if your customers are slow payers it can become very expensive.

Loan Fees

The fees that banks and other funding companies charge for business loans increase your total interest payment. For instance, you might pay an application fee to process your loan application. This often covers the cost of a credit check and is nonrefundable, even if you aren’t approved for a loan. If your loan gets processed, you could pay an origination fee to compensate the lender for their time and effort. You may pay a processing fee or underwriting fee to compensate for the time and energy spent reviewing and approving your loan application. Services fees may be charged for the bank to bill you, collect repayments, and provide customer service. If you pay off your loan before it’s due, you could face a prepayment fee. Paying off your loan by check instead of an online portal can result in check processing fees. There may be late payment fees if you miss a payment. Because of all these fees, your loan might cost you more than you anticipated.

Tier-Based Funding

With tier-based funding from Madison Resources, you gain access to multiple levels of pricing that decrease as you grow.  We offer a flat fee (advance rate only) for all invoices paid within 90 days.  However, we provide a tiered structure that is volume based.  So as you grow your business volume, your fees will automatically drop to the lower fee structure.  Instead of your customers controlling your cost, you do.  You gain more control and value from our tier-based model than you would from a bank or other funding company. We provide you more wiggle room for your customers to pay your invoices and do not assess additional interest. You can afford to go after those larger accounts who are pushing for longer and longer terms. You gain greater predictability to plan your costs and create budgets.

Here is an example.  Let’s assume you have $10,000 in invoices for the week.  With another funding company, you pay an advance rate of 2.1% for 30 days and .06% daily interest.  Let’s assume your customer pays at day 64.  You will pay an advance fee of $210 and interest of $204 ($6 daily for 34 days) or a total of $414.  With Madison, your advance rate would be 4.00%.  Your total fees would be $400 even if your customer’s payment doesn’t arrive until day 78. If your volume increases to $50,000, then your advance rate drops to 3.5% and your fee to $350.

It’s easy to get caught up with a low quote but it’s important to understand what the low rate covers and for how long.  Madison is able to compare your offers with calculations based on your forecasted business so you can make an informed decision when looking for a funding company to partner with.

Access Tier-Based Funding from Madison Resources

Access tier-based funding from Madison Resources. Save money and gain additional value when choosing us over a bank or other funding company. Find out more today.