Factoring Cost Calculator

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 compounds into a surprisingly high effective annual percentage rate (APR) once annualized — a 3 percent fee for a 30-day invoice works out to roughly 36 percent APR, which 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.

Enter your invoice amount, advance rate and factoring fee, and this calculator returns the fee amount, advance, net proceeds and the effective annualized APR so you can see the real cost of the cash.