Factoring — also called accounts receivable financing — lets a business unlock cash that is already earned but locked up in unpaid customer invoices. Instead of waiting 30, 60, or 90 days for a client to pay, you sell the invoice to a factoring company (the "factor") at a small discount and get most of the money upfront. This factoring calculator shows exactly how much cash you will receive, what the factor charges, and what that discount really costs you when it is expressed as an annual percentage rate (APR).
Adjust the four inputs and every figure updates instantly. The result card breaks the transaction into the gross advance, the reserve held back, the one-time factoring fee, and the net cash you walk away with — plus the annualized cost so you can compare factoring side by side against a business line of credit, a merchant cash advance, or waiting it out.
How to Use
- Enter the Outstanding Invoice Amount — the face value of the invoice (or invoices) you want to factor. If you factor several invoices at once, add them together.
- Set the Advance Rate — the percentage of the invoice the factor pays you immediately on approval. Most non-recourse factors advance 80–95%; construction and freight factors often advance 85–97%.
- Enter the Factoring Fee (per Period) — the factor's discount charge, usually quoted as a percentage of the gross invoice per 30-day period. A typical fee is 1–5% per 30 days, depending on your customer's credit, the invoice size, and the industry.
- Set the Average Collection Period — how many days your customer actually takes to pay. Use your real payment history, not the net-30 promise on the invoice; if clients routinely stretch to 45 days, enter 45.
The result card then shows:
- Gross Advance — the portion of the invoice the factor wires to you on day one.
- Factoring Fee — the discount the factor keeps, calculated on the full invoice value.
- Reserve Holdback — the portion the factor withends until your customer pays; it is remitted to you (minus the fee) once payment clears.
- Net Advance to You — cash in your bank on day one: gross advance minus the fee.
- Effective Annualized Cost (APR) — the fee rate annualized over your collection window, so you can compare this funding cost against other financing options.
How Factoring Actually Works
When you factor an invoice, three money movements happen:
- The advance. The factor wires you 80–95% of the invoice face value within 1–3 business days of approving the invoice. This is the working capital you use to cover payroll, buy inventory, or take on a new contract.
- The reserve. The remaining 5–20% is held back (the "reserve" or "holdback"). It is not a fee — it is your money, kept in escrow until your customer pays the factor directly.
- The fee. The factor charges a discount fee, usually quoted as a percentage of the full invoice amount per 30-day (or 60-day, 90-day) period. When your customer pays, the factor deducts its fee from the reserve and releases the balance to you.
The formulas are straightforward:
- Gross Advance = Invoice Amount × Advance Rate %
- Factoring Fee = Invoice Amount × Fee Rate %
- Reserve Holdback = Invoice Amount − Gross Advance
- Net Advance = Gross Advance − Factoring Fee
- Effective APR = Fee Rate % × (365 ÷ Collection Period in Days)
Worked example on a $100,000 invoice with a 90% advance and a 2% fee per 30 days: the gross advance is $90,000, the fee is $2,000, the reserve is $10,000, and the net cash you receive on day one is $88,000. When your customer pays in 30 days, the factor returns the $10,000 reserve — already net of its fee — so your total receipt is $98,000. The effective annualized cost is 2% × (365/30) = 24.3%, which looks high next to a bank loan but is often cheaper than the alternative of missing a payroll or turning down a 20% gross-margin contract because you cannot fund the materials.
Recourse vs Non-Recourse Factoring
There are two main flavors, and the choice changes who eats the loss if your customer never pays:
- Recourse factoring — if your customer does not pay, you must buy the invoice back from the factor (or replace it with another eligible invoice). Fees are lower, often 0.5–2% per 30 days, because the factor carries less risk.
- Non-recourse factoring — the factor absorbs the loss if your customer is insolvent or cannot pay for credit reasons. Fees run higher, typically 2–5% per 30 days, but you are protected against bad debt.
This calculator models the fee and cash-advance mechanics common to both structures; the reserve and net advance figures are the same either way, but the risk allocation is not. If you are weighing recourse vs non-recourse, multiply the fee difference by your expected bad-debt rate before deciding.
Examples
Example 1 — The standard $100,000 invoice. A staffing company has a $100,000 invoice due in 30 days but needs payroll this week. At a 90% advance and a 2% fee per 30 days, the factor wires $88,000 on day one ($90,000 advance minus $2,000 fee). When the client pays on day 30, the factor releases the remaining $10,000 reserve. Total received: $98,000. The effective APR is about 24.3%, but the staffing company uses the $88,000 to meet payroll and accept three new contracts it would otherwise have had to turn down.
Example 2 — A slow-paying customer stretches to 60 days. A supplier factors a $50,000 invoice at 80% advance with a 3% fee, but the customer routinely pays at day 60. Gross advance is $40,000, fee is $1,500, net advance is $38,500, and the reserve is $10,000. Because the fee is charged per 30-day period and the invoice stays out for 60 days, the effective annualized cost is 3% × (365/60) = 18.25% — cheaper than the 2%/30-day deal on paper once the longer period is baked in. Always enter your actual average collection period, not the invoice's net terms.
Example 3 — Factoring a $1,000,000 receivables book. A manufacturer factors a $1,000,000 portfolio at 85% advance with a 1.5% fee per 45 days. The gross advance is $850,000, the fee is $15,000, and the net wire is $835,000. The reserve of $150,000 is released when customers pay. The effective annualized cost is 1.5% × (365/45) = 12.17% — competitive with a senior secured term loan, and available in days rather than months.
FAQ
How much money will I get when I factor an invoice?
Your net advance on day one equals the invoice face value times the advance rate, minus the factoring fee. For a $100,000 invoice at a 90% advance and a 2% fee, that is $90,000 − $2,000 = $88,000. The remaining reserve (here $10,000) is returned to you after your customer pays.
What is a typical factoring fee?
Most factoring fees range from 1% to 5% of the invoice value per 30-day period. Fees are lower for blue-chip customers, large invoice sizes, and recourse arrangements (often 0.5–2%); they are higher for startups, construction, healthcare, and non-recourse deals (3–5%). The fee is charged on the gross invoice, not on the cash advance.
How does factoring compare to a business loan?
A bank loan approves you based on your credit and cash flow; factoring approves you based on your customer's credit, because the factor gets repaid directly by your client. Factoring is faster (days vs weeks/months), does not show up as debt on your balance sheet, and scales with your sales — but the effective APR (often 10–30%) is higher than a bank term loan. Use this calculator's APR output to compare the two directly.
What is the reserve and when do I get it?
The reserve (or holdback) is the slice of the invoice the factor does not advance on day one — usually 5–20%. It is your money, not a fee. Once your customer pays the factor in full, the factor deducts its earned fee and wires the reserve balance to you. If your customer pays late, additional per-period fees may be taken out of the reserve.
Is my personal credit checked when I factor invoices?
Typically no. Factors underwrite the account debtor (your customer) because that is who ultimately pays. Your business credit is reviewed lightly, and many new businesses with creditworthy customers can factor within a week. This is why factoring is popular with staffing, trucking, and startup B2B companies that cannot yet qualify for an SBA loan.
What is the difference between recourse and non-recourse factoring?
In recourse factoring, you buy back the invoice if your customer does not pay; fees are lower. In non-recourse factoring, the factor absorbs the loss if your customer cannot pay for credit reasons; fees are higher by roughly 1–3 percentage points per period. Choose non-recourse when your customer concentration is high or your balance sheet cannot absorb a default.
Does factoring hurt my customer relationship?
Done well, no. Most factors send a professional notice of assignment (NOA) and handle collections politely. The best factors position the arrangement as "your bank" rather than as a collections agency. Read the factor's collections policy before signing, and avoid factors that use aggressive dunning — that can damage the very customer relationship the invoice represents.
Disclaimer
This factoring calculator is provided for informational purposes only and does not constitute financial, legal, tax, or lending advice. Estimates are based on the inputs you enter and standard factoring formulas (advance = invoice × advance rate; fee = invoice × fee rate; APR = fee rate × 365 / period days). Actual factoring offers vary by factor, industry, customer credit, invoice size, recourse vs non-recourse structure, and volume discounts. Always confirm your exact advance rate, fee schedule, and reserve terms directly with a licensed factoring company before entering an agreement.