News and Tips on structured settlement transfers.

Cash

Structured Settlement Concepts – What’s a Factor?

If you plan to sell your structured settlement, the official name for this is a structured settlement factoring transaction.  The factor is the buyer of your settlement.

Factoring – where a buyer purchases the right to receive future payments from a third party – happens in lots of industries other than structured settlements.  Lots of businesses who need quick cash will sell their accounts receivable to a factor.  The business gets quick cash, and the factor gets to collect from the customers.

Why would anyone do this?  The answer is the discount rate.  In any factoring arrangement, including a structured settlement factoring transaction, the buyer is not paying for the full amount of the future payments.  Instead, he pays a reduced amount.  By paying you less than what he will ultimately collect from the scheduled payments on your settlement, he makes a profit – and you get the cash you need sooner.

This reduction is called the discount rate.  The discount rate that the factor applies to your stream of payments is, essentially, reverse interest that you are paying in exchange for the ability to get cash ahead of schedule.  The discount rate is intended to compensate the factor for a number of things.  First, he must secure the cash he needs to pay you off.  That means he has to get financing from someone, and that financing costs money.  Even if the factor has the cash on hand, by giving it to you he is missing out on the ability to invest that money elsewhere, so the discount rate compensates him for that, too. 

Factoring is a business, and business involves overhead.  Factoring businesses have offices, employees, and lots of costs to recover.  Since the structured settlement process is strictly regulated and all states have statutes to cover these transactions, factors need legal help in navigating the legal system, and lawyers don’t work free.  They need other people to cut the checks and keep the books, too.  And, of course, the factor wants to make a profit; they are not in business to help you.

So that’s why discount rates are often in the double digits.  Of course, you may not want to sacrifice that much to get cash quick, even if there is a reason for it.  Even if you do, if the discount rate is too high, the court may not approve the transaction.  You always have the ability to walk away from the sale during the “cooling off” period, and sites like QuoteMeAPrice allow you to understand the deal you’ll be making up front.

If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.

Leave a comment

Let Companies Compete to Buy your Structured Settlement!

*By submitting this form, I am providing QuoteMeAPrice with express written consent to contact me regarding product offerings by SMS/text messages or by using an auto dialer (or automated means) at the phone number(s) provided and such consent is not a condition of a purchase. I also consent and agree to QuoteMeAPrice's Privacy Policy and/or Terms of Use.