Invoice Factoring Calculator

Calculate the cost of factoring your invoices and determine if it's the right financing option for your business

Invoice Details

The total value of the invoice(s) you want to factor
The percentage of the invoice amount you'll receive upfront (typically 70-95%)

Factoring Fees

The fee charged by the factoring company (typically 1-5% per 30 days)
How long until your customer pays the invoice
How the factoring company charges their fees
Any setup fees, wire fees, or other charges

Understanding Invoice Factoring

What is Invoice Factoring?

Invoice factoring is a financial transaction where a business sells its accounts receivable (invoices) to a third party (called a factor) at a discount. In return, the business receives an immediate cash advance, typically 70-95% of the invoice value.

The factoring company then collects payment from your customers when the invoice is due. Once the customer pays, the factor remits the remaining balance to you, minus their fee.

How Invoice Factoring Works:

  1. You provide goods or services to your customer and issue an invoice
  2. You sell the invoice to a factoring company
  3. The factor advances you a percentage of the invoice value (typically 70-95%)
  4. Your customer pays the factoring company directly when the invoice is due
  5. The factor remits the remaining balance to you, minus their fee

Key Terms in Invoice Factoring

Term Definition
Advance Rate The percentage of the invoice value that the factoring company pays upfront
Factor Rate The fee charged by the factoring company, usually expressed as a percentage of the invoice value
Reserve Amount The remaining portion of the invoice value held back until your customer pays (Invoice Amount - Advance)
Recourse vs. Non-recourse Determines who bears the risk if your customer doesn't pay (you or the factoring company)
Notification vs. Non-notification Whether your customers are informed that you're using factoring

Benefits of Invoice Factoring

  • Immediate cash flow - Get paid within 24-48 hours instead of waiting 30-90 days
  • No debt - Factoring is selling an asset, not taking on debt
  • Easier qualification - Approval based on your customers' creditworthiness, not yours
  • Scalable financing - Funding grows with your sales
  • Outsourced collections - The factoring company handles collecting payment

Considerations Before Factoring

  • Cost - Factoring is typically more expensive than traditional bank financing
  • Customer relationships - Your customers may be contacted by the factoring company
  • Dependency - Can become reliant on factoring for cash flow
  • Industry limitations - Some industries are more difficult to factor (e.g., construction)
  • Contract terms - May include minimum volume requirements or long-term commitments

Alternatives to Invoice Factoring

Alternative Description Pros Cons
Invoice Financing Using invoices as collateral for a loan You maintain customer relationships; potentially lower cost Still requires credit approval; you're responsible for collections
Business Line of Credit Revolving credit line you can draw from as needed Flexible; only pay interest on what you use Requires good credit; may have stricter requirements
Trade Credit Extended payment terms from suppliers Often interest-free; improves cash flow Limited to supplier purchases; may require negotiation
Merchant Cash Advance Advance based on future credit card sales Quick funding; easy qualification Very high cost; daily repayments

Financial Disclaimer

This calculator provides estimates based on the information you provide. Actual factoring costs may vary depending on:

  • Your industry and business profile
  • Your customers' creditworthiness
  • The factoring company's specific terms and conditions
  • Volume of invoices factored

Always consult with a financial advisor before making financial decisions for your business.