I spoke with a staffing company owner the other day who thought she was getting a great rate that couldn’t be beat.

“Shelly, I’m only paying a .067% daily rate with my current provider. I’m really comfortable with that rate.”

When I pointed out to her that .067% on a daily basis equates to a 24% APR, she wasn’t so confident. And when I further showed her that a daily rate of prime plus 2% was only a 5.25% APR (when prime is 3.25%), she really began to understand her true costs.

Finding the right funding provider can seem like a daunting task. There are many to choose from, but not all offer the same services or pricing structures.

Funding providers offer two types of relationships: Full Service, which includes funding as well as administrative services, or Funding Only. There’s a major pricing pitfall that can impact both types of relationships—it’s important to be aware of the potential traps unique to each.

Full Service
Some Full Service funding providers offer a Tiered Pricing structure—the higher your volume, the lower your rate. This can sound pretty good to a staffing company that’s focused on growth. However, you want to review the terms of a Tiered Pricing structure closely.

Oftentimes the rates are artificially higher for lower volumes. Not a problem if your volume is higher than that tier, right? Not necessarily. A funder may apply the discounted rate only to the portion of your volume at or above the point at which you receive the volume discount. The portion up to that tier is still charged at the higher rate. For example, if your rate decreases at $30,000 and your volume is $31,000, the lower rate applies only to $1,000. The remaining $30,000 may be charged at the higher rate.

Ultimately when evaluating Full Service relationships in terms of cost, it’s important to look at what services are tied to your rate. You may choose a provider because their rate is 2% over one that is offering 3%, but the difference in rates often directly relates to the services they offer. Specifically, you may see a big difference in the depth of service, attention to detail, accuracy and technology those two providers offer. Is the funding provider that offers 2% performing monthly tie-outs and audits so errors are detected and corrected before it impacts your bottom line? Will their service eventually impact the service you’re able to provide your own customers? What will this cost you in other ways?

Funding Only
Funding Only relationships typically fall under one of two types of pricing structures: The Base Price. This is a flat fee or rate that covers a specific period of time (for example, 1.5% for 30 days). Daily Rate. This is when interest is charged daily, either from Day One with no Base Price, on a daily basis after the Base Price period has ended, or in combination with a Base Price from Day One (for example, the Base Price is .5% with daily interest of .079% from Day One).

Now is the time to get out your calculator and evaluate the numbers closely. The key to understanding your actual cost is to know when the daily rate takes effect. A funding provider may offer a low Base Price, but charge a Daily Rate from Day One. Let’s look at the numbers:

• A Daily Rate of .05% with no Base Price will cost 1.5% for receivables that are paid within 30 days, 2.25% for 45 days, and 3% for 60 days.


• A Base Price that’s 1.5% for the first 30 days, and then has a Prime + 2% Daily Rate thereafter will cost (assuming a 3.25% prime rate) 1.5% for 30 days, 1.72% for 45 days and 1.94% for 60 days.


• A Base Price that’s 0.5%, and charges a Daily Rate of .079% from Day One will cost 2.87% for 30 days, 4.05% for 45 days, and 5.24% for 60 days.

It’s important when doing these cost calculations that you are honest about the average length of time your receivables are outstanding. Daily interest can add up to be a substantial cost. Your funder knows this all too well.

You don’t want to experience any unpleasant surprises when it comes to your funding. It’s crucial to understand the pricing structures and all of their intricacies. When you combine solid pricing with top-notch service, you’re on track to having not just a funding provider, but a long-term partner.