Invoice Factoring Cost Calculator
See the fee, cash advanced and effective annual rate of factoring an invoice, so you can compare it fairly against a line of credit.
How it works
Fee = invoice × fee% × (days ÷ 30) · Advance = invoice × advance% · Effective APR = fee ÷ advance × 365 ÷ days × 100
Factoring sells an unpaid invoice for immediate cash. The factor advances most of the face value now, charges a fee that usually grows with how long the invoice stays open, and releases the remaining reserve once your customer pays. A fee that looks small — 3% — is deceptively expensive because you only borrow the money for a few weeks. Annualising it against the amount actually advanced reveals the true cost, which often lands in the double or triple digits and is the only fair way to compare factoring with a bank line of credit.
Worked example
A $10,000 invoice, 85% advance rate, 3% fee per 30 days, paid in 45 days: the fee is 10,000 × 3% × 1.5 = $450, the advance is $8,500, and you net $9,550. The effective APR is 450 ÷ 8,500 × 365 ÷ 45 = about 43% — far above the headline 3%.
Frequently asked questions
Why is the APR so much higher than the fee?
The fee is charged for only the weeks the invoice is outstanding, but APR annualises it. A 3% fee held for 45 days repeats roughly eight times a year, so the annual cost is many times the sticker fee.
What is the reserve?
Factors advance only part of the invoice — the advance rate — and hold the rest as a reserve. When your customer pays the factor, the reserve is released to you minus the agreed fee.
Is factoring the same as a loan?
No. Factoring is the sale of a receivable, not a loan against your balance sheet, so it usually does not add debt. But priced as an annual rate it is often more expensive than borrowing, which is why comparing the APR matters.
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Educational estimate, not financial advice.