Invoice Factoring Calculator
The true cost of factoring an invoice: cash advanced, the discount fee by 30-day period or flat, rebate, cost as a percentage of the invoice, annualised APR, the late-payment scenario, annual cost at your volume and a comparison with early-payment discounts and a bank line.
| Cash advanced now | — |
|---|---|
| Factoring fee for the period | — |
| Rebate when the customer pays | — |
| Total you receive | — |
| Effective cost as % of invoice | — |
| Annualised cost (APR on the advance) | — |
| If the customer pays 30 days late | — |
| Annual cost at your volume | — |
| Compared with a 2/10 net 30 early-payment discount | — |
In short
Invoice factoring advances 80–90% of an invoice immediately and charges a discount fee of roughly 1–5% per 30 days until the customer pays; a 2%-per-30-days fee on a 45-day invoice costs 4% of face value, which is close to 40% annualised on the cash actually advanced. Non-recourse factoring costs more but shifts customer credit risk to the factor; compare with a bank line of credit or early-payment discounts.
Who this is for: US B2B businesses with slow-paying customers comparing factoring offers.
What invoice factoring really costs
- Mechanics: advance rate (typically 80–90%) × invoice paid now; the factor collects the invoice and releases the reserve less the discount fee.
- Fees: 1–3% per 30 days is common for creditworthy customers; "flat" 2–5% deals are cheaper for slow payers, per-period deals are cheaper for fast payers. A 2% per-30-days fee on a 45-day invoice is 4% of face value — about 38% annualised on the cash advanced.
- Recourse vs non-recourse: non-recourse factoring costs 0.5–2 points more but protects you if the customer goes bust (not if they dispute the invoice).
- Alternatives: a bank line of credit (prime + 1–4%), early-payment discounts, or invoice financing (borrowing against receivables you still collect yourself).
- When it works: fast growth with long customer terms, government or large-company customers with slow but reliable payment, and businesses that cannot yet get bank credit.
See also: Merchant Cash Advance Calculator, Business Loan Calculator.
Assumptions
- Fee = rate × invoice × number of (full or partial) periods outstanding, or flat; plus other fees.
- Annualised cost = fee ÷ cash advanced × 365 ÷ days outstanding.
- Comparison: 2% early-payment discount; bank line at 11% on the advance for the same days.
Worked example
Advance $42,500 now. The 45 days span two 30-day periods, so the fee is 2 × 2% × $50,000 = $2,000 + $50 = $2,050 (4.10% of the invoice). Rebate $5,450 on collection; you receive $47,950 in total. Annualised on the $42,500 advanced over 45 days that is about 39%. If the customer pays 30 days late the fee becomes $3,050 (6.10%, ~35% annualised over 75 days). Over a year, $24,600 on $600,000 of invoices; a 2% prompt-payment discount would cost $1,000 per invoice instead.
Frequently asked questions
How much does invoice factoring cost?
Typically 1–5% of the invoice per 30 days, depending on volume, customer credit and recourse terms — often 25–60% annualised on the cash advanced.
What is the difference between recourse and non-recourse factoring?
With recourse you buy back invoices the customer does not pay; non-recourse shifts the customer credit risk to the factor for a higher fee.
Does factoring affect my credit?
It is not a loan, so it does not add debt to your balance sheet; your customers will know, as they pay the factor directly.
Is invoice factoring tax-deductible?
Yes — factoring fees are an ordinary business expense.
Will my customers know I am factoring?
Yes for traditional factoring (they pay the factor); confidential invoice financing keeps collections in your name at a higher cost.
What is a factoring reserve?
The 10–20% of the invoice the factor holds back until the customer pays, released minus fees.
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