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:
Buyout Figure = 84,250.00
In the next week of this series, we'll look at how the new factoring company verifies the already outstanding invoices and reach this buyout figure for your business.