Invoice Factoring Cost Calculator
Estimate the advance, fee, reserve and net proceeds on a factored invoice, with a simple annualized cost on the advance.
How invoice factoring cost works
When a business factors an invoice, it sells the receivable to a factor for immediate cash. The factor advances most of the invoice face value right away at the advance rate, holds the remainder as a reserve, and charges a factoring fee for the financing. Once the debtor pays, the reserve is released net of the fee.
The annualized cost divides the fee by the advance, then multiplies by 365 divided by collection days. It is a simple annualization without compounding. Compare the payment schedule, other fees and contract terms as well as this percentage.
Connect payment matching, collections and reporting in your factoring operations. Explore invoice verification.
Frequently asked questions
How is the cost of invoice factoring calculated?
Factoring cost is driven by the factoring fee (also called the discount rate), a percentage of the invoice face value the factor keeps for advancing funds and collecting the receivable. This calculator applies a single flat fee to the invoice, shows the advance you receive up front at your advance rate, the reserve held back, and the net proceeds after the fee. It then annualizes the fee over the collection period to show an simple annualized cost on the advance.
What is the difference between the advance rate and the factoring fee?
The advance rate is how much of the invoice you receive immediately (commonly 80 to 90 percent), with the rest held as a reserve and released, net of fees, once the debtor pays. The factoring fee is the cost of the financing. They are separate levers: a high advance rate improves your day-one cash, while the fee determines what the financing actually costs.
Why is the annualized cost so much higher than the fee?
A 2 to 3 percent fee looks small, but it is earned over a short collection period, often 30 to 60 days. Annualizing that cost over a full year produces an annualized cost many times the headline fee. This is why comparing factoring on fee alone understates its true cost relative to a term loan or line of credit.
Are these figures exact?
No. This is an estimate using a single flat fee and one collection period. Real factoring agreements use tiered or per-diem fees, minimums, and other charges, and pricing varies by industry, debtor quality, and volume. Use this as a directional comparison, then confirm exact terms with the factor.
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