Invoice Factoring Cost Calculator

What Is Invoice Factoring?

Invoice factoring (also called accounts receivable factoring) is when you sell your outstanding invoices to a third-party company (a "factor") at a discount in exchange for immediate cash. Unlike a loan, you're not borrowing money — you're selling an asset (your receivable). The factor collects payment directly from your customer when the invoice comes due.

This is fundamentally different from AR financing (invoice financing), where you use your invoices as collateral for a loan but still collect payment yourself.

Recourse vs. Non-Recourse Factoring

When Factoring Makes Sense

• You have strong receivables but can't qualify for a line of credit (startup, poor credit history)
• You need cash faster than your customers pay (Net 60–90 is common in government contracting, staffing, trucking)
• Your customers have better credit than you do — factors care most about your customer's creditworthiness
• You have rapid growth and need working capital to fulfill new orders now
• It's a short-term bridge while you build the credit profile to qualify for cheaper financing

The Hidden Cost Problem

Factoring companies rarely advertise APR because it would be alarming. A "low" factor rate of 2% per month sounds reasonable until you realize it's 24% annualized — and that's on the face value of the invoice, not just the advance. When calculated on the advance actually received (the true cost of the capital you're using), effective APR is routinely 30–80%+.

The faster your customers pay, the lower your total fees — but the higher your effective APR (the same fee spread over fewer days). This is why the days-to-pay figure matters so much when comparing factor rates.

How to Negotiate Factor Rates

• Volume: Factors give better rates for higher monthly volume (above $500k/month is a different conversation)
• Customer quality: Fortune 500 customers or government contracts command lower rates — default risk is minimal
• Concentration: If you have many customers (not one giant one), that reduces the factor's risk
• History: 12+ months of factoring with low chargebacks improves your negotiating position
• Competition: Get quotes from 3+ factors — rates vary significantly for the same deal

Alternatives to Consider First

Before factoring, explore: business line of credit (if you can qualify — 10-15x cheaper), SBA line of credit, net terms financing (some vendors offer extended terms), or simply tightening your collection process to reduce days outstanding. If you do factor, treat it as a short-term tool while you build creditworthiness for cheaper options.