How to use this calculator
- Enter the invoice amount and the advance rate from the factoring quote.
- Enter the factoring fee and how it’s charged — for example “3% per 30 days”. Most factors charge for each period, or part of a period, that the invoice is outstanding.
- Estimate how many days your customer takes to pay. Use their actual payment history if you have it; Net 30 terms often stretch to 40–60 days.
- Add any flat fees such as ACH or wire charges, application or due-diligence fees.
How invoice factoring works
Invoice factoring turns unpaid business-to-business invoices into immediate cash. You sell an invoice to a factoring company, which advances most of its value — often within a day or two. When your customer pays the invoice, the factor releases the remaining balance to you, minus its fees.
- You deliver goods or services and invoice your customer.
- The factor advances, say, 85% of the invoice.
- Your customer pays the factor on the invoice’s terms.
- The factor sends you the reserve (15%) minus its fees — the rebate.
Factoring fee structures
| Structure | How it works |
|---|---|
| Flat fee | A single percentage regardless of payment time — simple but can be expensive on fast-paying invoices. |
| Per period (tiered) | A fee for every 30, 15 or 10 days outstanding. Any part of a period is usually charged as a full period. |
| Prime-plus / daily | Interest-like charge on the advanced amount, accruing daily — common with larger facilities. |
| Extra fees | Application, due diligence, ACH/wire, monthly minimums, early termination — ask for the full fee schedule. |
Worked example
A staffing firm factors a $25,000 invoice with an 85% advance and a fee of 3% per 30 days. The client pays in 45 days, and there’s a $50 ACH fee.
- Advance today: 85% × $25,000 = $21,250.
- 45 days spans two 30-day periods, so the factoring fee is 2 × 3% × $25,000 = $1,500; total fees $1,550.
- Rebate when the client pays: $3,750 reserve − $1,550 = $2,200.
- Net received: $23,450 (6.2% of the invoice went to fees).
- Effective APR on the $21,250 advance: $1,550 ÷ $21,250 × 365 ÷ 45 ≈ 59%.
If the client had paid on day 30, only one fee period would apply and the total cost would fall to $800. Payment speed matters as much as the headline rate.
Recourse vs non-recourse factoring
- Recourse factoring — the most common and cheapest. If your customer doesn’t pay, you must buy back the invoice or replace it.
- Non-recourse factoring — the factor absorbs the loss if your customer can’t pay due to insolvency (usually not for disputes). Fees are higher and approval is stricter.
Factoring vs other financing
| Option | Speed | Typical cost | Approval based on |
|---|---|---|---|
| Invoice factoring | 1–3 days | 1%–5% per 30 days | Your customers’ credit |
| Business line of credit | Days to weeks | Lower APR, interest on what you use | Your business credit and revenue |
| Merchant cash advance | 1–2 days | Often very high APR — see the MCA calculator | Card or bank deposits |
| SBA loan | Weeks to months | Lowest | Credit, cash flow, collateral |
Advance = invoice × advance rate
Factoring fee = invoice × fee % × number of fee periods (rounded up)
Rebate = (invoice − advance) − total fees
Effective APR ≈ total fees ÷ advance × 365 ÷ days outstanding
Frequently asked questions
How much does invoice factoring cost?
Factoring fees typically range from about 1% to 5% of the invoice for every 30 days it remains unpaid, plus possible extras such as application, ACH/wire or due-diligence fees. The total depends heavily on how long your customer takes to pay — which is why this calculator asks for the expected days to payment.
What is an advance rate?
The percentage of the invoice the factoring company pays you upfront — commonly 70% to 95%. The rest (the reserve) is held until your customer pays, then released to you minus the factoring fees. This released amount is called the rebate.
How do I calculate the APR of invoice factoring?
Divide the total fees by the cash you actually received upfront (the advance), then scale it to a year: fees ÷ advance × 365 ÷ days outstanding. It’s an approximation, but it lets you compare factoring with a loan or line of credit on the same basis.
Does my customer know I’m factoring?
In most “notification” factoring arrangements, yes — your customer is told to pay the factoring company directly. Some providers offer non-notification (confidential) factoring or invoice financing, where you collect and repay yourself, usually at a higher cost or with stricter requirements.
Is invoice factoring a loan?
Factoring is typically structured as a sale of your receivables rather than a loan, so it doesn’t appear as debt on your balance sheet the same way. Approval depends mainly on your customers’ creditworthiness rather than your own credit score.
Sources
- Loans — funding programs for small businesses — U.S. Small Business Administration
- Manage your finances — business guide — U.S. Small Business Administration
- Small business lending rule and research (Section 1071) — Consumer Financial Protection Bureau