| Invoice Total: | $'+inv.toLocaleString()+' |
| Advance Amount ('+advR+'%): | $'+advanceAmt.toLocaleString(undefined,{minimumFractionDigits:2})+' |
| Reserve Amount: | $'+reserveAmt.toLocaleString(undefined,{minimumFractionDigits:2})+' |
| Factoring Fee ('+feeR+'% for '+days+' days): | -$'+totalFee.toLocaleString(undefined,{minimumFractionDigits:2})+' |
| Final Rebate to You: | $'+rebate.toLocaleString(undefined,{minimumFractionDigits:2})+' |
| Total Cash Received: | $'+(advanceAmt+rebate).toLocaleString(undefined,{minimumFractionDigits:2})+' |
Using the Factoring Calculator
The factoring calculator is an essential tool for business owners who use accounts receivable financing to improve cash flow. By entering your invoice details, you can instantly see how much immediate capital you will receive and what the total cost of financing will be once your customer pays the invoice.
Invoice factoring allows companies to "sell" their unpaid invoices to a third party (the factor) at a discount. This provides immediate liquidity without waiting 30, 60, or 90 days for customer payments.
- Total Invoice Amount
- The gross value of the invoice you are looking to factor, including taxes and shipping charges.
- Advance Rate
- The percentage of the invoice the factor pays upfront. This typically ranges from 70% to 95% depending on the industry.
- Factoring Fee
- Also known as the discount rate, this is the fee charged by the factor, usually expressed as a monthly percentage (e.g., 3% per 30 days).
- Days to Pay
- The estimated number of days it will take for your customer to remit payment to the factor.
How It Works: The Factoring Formula
Factoring involves two separate payments to your business. The first is the advance, and the second is the rebate (the reserve minus fees). The calculation follows this standard logic:
Advance = Invoice Amount × Advance Rate (%)
Total Fee = Invoice Amount × Fee Rate × (Days to Pay / 30)
Rebate = (Invoice Amount – Advance) – Total Fee
- Step 1: The factor sends you the Advance immediately.
- Step 2: The factor holds the "Reserve" (the remaining % of the invoice).
- Step 3: Once the customer pays, the factor subtracts their fee from the Reserve.
- Step 4: The remaining balance (Rebate) is sent to your business.
Calculation Example
Scenario: A construction company factors a $25,000 invoice. The factor offers an 85% advance rate with a 2% fee for every 30 days. The customer pays in 45 days.
Step-by-step solution:
- Immediate Advance: $25,000 × 0.85 = $21,250
- Reserve Amount: $25,000 – $21,250 = $3,750
- Factoring Fee: $25,000 × 0.02 × (45 / 30) = $750
- Final Rebate: $3,750 – $750 = $3,000
- Total Cash Received: $21,250 + $3,000 = $24,250
Common Questions
What is the difference between recourse and non-recourse factoring?
In recourse factoring, your business is responsible if the customer fails to pay the invoice. In non-recourse factoring, the factor assumes the credit risk of the customer, though this usually comes with higher fees.
Is factoring more expensive than a bank loan?
Generally, yes. Factoring fees usually equate to a higher annual percentage rate (APR) than traditional bank loans. However, factoring is easier to qualify for because it is based on your customers' creditworthiness rather than your own company's credit or collateral.
How do the "Days to Pay" affect my cost?
Most factoring agreements are "time-sensitive." The longer your customer takes to pay, the more fees you will accumulate. Our factoring calculator helps you model different payment timelines to see how customer delays impact your bottom line.