Accounts Receivable Factoring: How to Calculate Your Buyout Figure

Are you moving from factoring company to another? If so, you may find you and your business may be caught up in the tedious process of a Buyout. A buyout occurs whenever one company has a balance owed on accounts receivables they purchased and are the current UCC-1 lien holder on the business in question. There are many steps involved and over the next few weeks, we'll take a look at them all. This week, we'll discuss how to calculate the buyout figure.

Simply put, the buyout figure is the total amount owed to the UCC-1 lien holder. Here's how that is reached:

Unpaid Invoices + Fees Owed - Reserves = Buyout Figure

Still unclear? Understandably so. Let's work it out with an assumed fee structure and totals. Lets say that your fee structure is a 90% advance with a flat 5% fee for invoices factored month to month. Your current outstanding balance in accounts receivables factored for the month total $85,000.

1. Total A/R - $85,000

5% of $85,000 is $4,250. This would be your fees owed. If you did not give written notice prior to leaving, you may also owe Early Termination fees, so check with your factor.

2. Total Fees Owed - $4,250

Your reserves - which should be roughly 5% of your total open balance depending on how your factor releases reserves - can vary greatly based on many variables, lets just say you have $5,000 in reserves.

3. Total Reserves $5,000

The final result would look something like this:

$85,000 A/R

$4,250 Fees

(5,000) Reserves

Buyout Figure = $84,250.00

In another post, we'll look at how the new factoring company verifies the already outstanding invoices and reach this buyout figure for your business.