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What factoring an invoice actually nets you
Advance rate, discount and reserve are three numbers that have to be read together. This puts them together.
Invoice factoring cost
Factoring is priced as a discount on the invoice, often per 30 days. The annualised cost of a fast-paying customer is very different from a slow one.
- Cash advanced now
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- Total fee
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- Rebate when they pay
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- Approximate annualised cost
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The annualised figure is arithmetic on the days you entered, not a quoted APR. If your customer pays at 90 days rather than 45, the same fee schedule roughly doubles the cost.
Factoring is quoted in a way that makes the cheap part loud and the expensive part quiet. The advance rate is the number on the front page; the discount and how it escalates with time are what you actually pay.
Enter the invoice, the advance rate, the discount structure and how long your customer really takes. The calculator shows the cash now, the reserve release, the total cost and what that works out to annualised.
Days to pay is the variable that moves everything. Use what your customers actually do, not what your terms say — a 30-day invoice paid on day 55 is charged for two periods in most structures, not one.
The terms in this calculator
Questions about the invoice factoring cost calculator
Is invoice factoring a loan?
In most structures it is a sale of the receivable, not a loan against it. That changes who owns the invoice, who collects it, and what happens if your customer does not pay, which depends on whether your facility is recourse or non-recourse.
What is the difference between the advance rate and the discount?
The advance rate is how much of the face value you get now. The discount is what the factor keeps for the service. A high advance rate with an aggressive discount schedule can cost more than a lower advance rate with a flat fee.
What is the reserve?
The part of the invoice not advanced to you, held back until your customer pays. It is released less the discount and any chargebacks. It is your money, held — not a deposit you can draw on.
What does non-recourse actually cover?
Usually only your customer's insolvency, and often only for customers the factor approved in advance. Disputes, short payments, offsets, returns and simple slow payment are typically still your problem. Read the carve-outs.
How is factoring cost annualised?
Divide the cost by what you actually received, then scale by how many times that cycle repeats in a year at your real days to pay. A 2% discount at 30 days is a very different annual cost from 2% at 75 days.
Will my customers know I am factoring?
In a notification facility, yes — they receive a notice of assignment and pay the factor directly. Non-notification arrangements exist and cost more. Either way, verification calls to your customers are standard.
What is a concentration limit?
A cap on how much of your funded ledger can come from any one customer. If one customer is most of your revenue, a concentration limit can make a large part of your book ineligible no matter how good that customer is.
What is cross-aging?
A clause making all of a customer's invoices ineligible when a set share of them age past a threshold. One late invoice can take good invoices from the same customer out of your borrowing base with it.
Can I factor a single invoice?
Spot factoring exists and costs more per invoice than a whole-ledger facility. It is worth it when the need is genuinely one-off; it is expensive as a habit.