Try the math
What invoice factoring costs.
A factor advances most of an invoice today, charges a fee for each period it stays unpaid, and sends the rest when your customer pays. Put in the invoice, the advance rate, the fee and how long the customer takes.
The arithmetic
- Invoice
- $25,000
- Cash now
- $21,250
- Fee (2% × 45/30 days)
- $750
- Back to you when paid
- $3,000
- Cost of the money
- $750
Illustration, not a quote. Fee structures vary: some are flat, some step up every 10 or 15 days. Ask which, and what happens past 90 days.
See my optionsBefore you sign
Ask whether it is recourse factoring. If the customer never pays, find out now who carries it.
How invoice factoring works, in fullA worked example
The starting position, written out.
Say a fleet customer owes you $25,000 on net-45 terms. A factor advances 85% today, charges an illustrative 2% of the invoice for every 30 days it stays unpaid, and the customer pays on day 45.
You had $21,250 for 45 days and it cost $750, which is 3% of the invoice. If the customer pays on day 90 instead, the fee is $1,500 and the rebate is $2,250. The cost of factoring is set by your customer’s habits, not by you, which is why the invoice to factor is the one owed by the customer who pays on time.
Illustration, not a quote
- Invoice
- $25,000
- Cash now (85%)
- $21,250
- Fee (2% × 45/30 days)
- $750
- Back to you when paid
- $3,000
- Cost of the money
- $750
Nobody has offered you these terms. The figures are the calculator's own arithmetic at its starting position; real terms come from a funding partner.
How to read the result
What the numbers are telling you.
The advance rate is timing, the fee is cost
Two percentages on the card do two different jobs. The advance rate says how much of the invoice you get today; the rest is held back and comes to you when the customer pays, minus the fee. The fee is the only line that is a cost. A higher advance rate does not make factoring cheaper; a customer who pays faster does.
Run it at the day your customer actually pays
Net-30 customers who pay on day 50 are common. Set the days slider to when the money really arrives, from your own ledger, not to the terms on the invoice. Then move it to 90 and see what a slow month does to the fee. That number is the one to test the arrangement against.
What the arithmetic leaves out
Some factors charge a flat fee for the first period and a step every 10 or 15 days after; some add a processing or wire fee per invoice; some require you to factor every invoice from a customer rather than one. None of that is in the calculator. Ask for the fee schedule in writing and run the worst row on it.
Questions
About the arithmetic.
The questions about invoice factoring itself, and what a funding partner may look at, are on its page.
Invoice factoring, in fullWhy is the fee charged per 30 days?
Because the factor is paid for time: the longer the invoice stays open, the longer their money is out. The calculator charges the fee pro rata, so 45 days at 2% per 30 costs 3%. Real schedules vary. Some are flat for the first 30 days and then step up every 10 or 15, which costs more than pro rata on a slow payer. Ask which yours is.
What happens if the customer pays late?
The fee keeps running. On the example, day 45 costs $750, day 60 costs $1,000, day 90 costs $1,500. Illustration, not a quote. Past 90 days many agreements change: the fee may step up sharply, or the factor may ask you to buy the invoice back. Find out what your agreement does at day 90 before you sign, not on day 91.
Is the advance rate the cost?
No. The advance rate is how much you get now; the rest comes back when the customer pays. An 85% advance on $25,000 is $21,250 now and $3,000 later, less the fee. The only cost is the fee line. Compare factors on the fee schedule and what they do to a late invoice, not on who advances the most.
What is the rebate?
The part of the invoice held back at the start, paid to you when your customer pays the factor, with the fee taken out of it. On the example the holdback is $3,750, the fee is $750, and the rebate is $3,000. If the fee grows because the customer is slow, the rebate shrinks by the same amount.
How does factoring compare with an advance for the same gap?
For 45 days, the example costs $750 on $21,250 of cash. The same $21,250 as a merchant cash advance at a factor of 1.30 costs $6,375, however fast you remit it. Illustrations, not quotes. Factoring only works when there is an invoice owed by a business customer; when there is, it is usually the cheaper way to bridge the wait. The factoring page covers what a factor looks at.
The other shapes
Not the one you meant?
- Try the math
Merchant cash advance
Factor rate times advance: the total you remit, and what the money costs.
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Business line of credit
Interest on what you draw, over the months it takes to clear.
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Term loan
A fixed monthly payment, and the total interest over the term.
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Equipment financing
The payment on the machine, and what financing adds to its price.
- Try the math
SBA loan
The payment on a long, government-backed term, and the interest over it.
Know what you can carry?
Then tell me what you need. About two minutes, no credit pull to start, and the decision stays yours.