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Factoring Cost Calculator

See what selling an invoice really costs you once the fee is annualized.

How it is calculated

The fee is entered as one total percentage of the invoice for the whole time it stays unpaid. fee = invoice × fee% ÷ 100; advance = invoice × advance% ÷ 100; net proceeds = invoice − fee, the total you end up with once the customer pays. The effective rate measures the fee against the cash actually advanced and scales it to a year with simple interest: APR = fee ÷ advance × 365 ÷ days_outstanding × 100. It is not compounded. If the factor quotes a fee per 30 days, multiply it up for the days the invoice will stay open before entering it. The invoice, advance rate and days must be above zero, and the advance rate and the fee cannot exceed 100; a 0% fee is allowed and gives a 0.00% rate. Anything else shows no result.

Worked example

An invoice of 50,000 is factored with an 85% advance and a total fee of 3%; the customer pays after 45 days. Fee: 50,000 × 3% = $1,500.00. Advance: 50,000 × 85% = $42,500.00. Net proceeds once the customer pays: 50,000 − 1,500 = $48,500.00. Effective APR: 1,500 ÷ 42,500 × (365 ÷ 45) × 100 = 28.63%. A 3% fee therefore costs far more than 3% on a yearly basis, because it pays for money used for only 45 days.

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Common mistakes

  • Entering a per-30-days fee for an invoice that stays unpaid longer. A 3% fee per 30 days on a 60-day invoice is 6% in total, so enter 6, not 3.
  • Judging the cost by the fee percentage alone. The same 3% fee gives a much higher yearly rate on a 20-day invoice than on a 90-day one.
  • Reading the advance rate as the share of the invoice you finally receive. The advance is only the first payment; the rest, less the fee, comes later.
  • Leaving out other charges such as service, set-up or minimum-volume fees. Only the percentage you enter is counted, so the true cost may be higher.
  • Comparing this APR directly with a bank's compounded rate. It is a simple annualization on the advanced cash.

About this calculator

Invoice factoring is a financing method where a business sells its unpaid invoices to a factoring company at a discount in exchange for immediate cash — the factor advances most of the invoice value upfront (commonly 80 to 90 percent), then pays the remainder minus a factoring fee once the customer actually pays the invoice.

The factoring fee itself is usually quoted as a flat percentage per 30-day period (say 1 to 5 percent), which sounds modest but adds up to a surprisingly high rate once annualized — a 3 percent fee for a 30-day invoice is already about 36.5 percent a year measured against the invoice. This calculator annualizes on the cash actually advanced, so with a typical 80 percent advance that same fee reports closer to 46 percent as a simple (non-compounded) APR. That is why factoring is generally a more expensive source of working capital than a bank line of credit, but businesses use it anyway when cash flow is tight and speed matters more than cost, since factoring approval hinges on the creditworthiness of the business’s customers rather than the business itself. Small businesses, staffing agencies and trucking companies are especially heavy users of factoring specifically because their customers often pay on 30, 60 or 90-day terms while payroll and fuel bills can’t wait.

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