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What does factoring really cost me?

Estimate what you keep from every $1,000 you factor, and the fees you pay each month.

What this leaves out

  • Recourse and chargebacks, which depend on the contract and on whether a customer pays.
  • Contract minimums, termination fees, and fees not listed in this form.
  • Fees a provider may charge on top of the main fee. Add known ones under more options.

Your numbers

Enter the terms you were given. The starting numbers are examples.

Total value of the invoices you factor.

Share of each invoice paid up front.

Fee structure

Flat, or charged per period.

Percent of the invoice, or percent per period.

More options

ACH, wire, or minimum fees.

Estimate

Example only

You keep, per $1,000 invoiced

$970

Estimate only. Pay speed and contract terms change real costs.

Example numbers. Not an offer or a typical rate.

Want to see what providers say? Send one financing request.

Assumptions and sources

  • Defaults. All defaults are examples: $40,000 a month, a 90% advance, a flat 3% fee, a 30 day period, and customers paying in 35 days. As of . Example.
  • Customer payment timing. Customers pay in the number of days you enter, on average. As of . Calculation scope.
  • Per period fees. With a per period fee, any period that has started counts as a full period. A 35 day payment on 30 day periods counts as 2 periods. As of . Calculation scope.
  • Other monthly fees. Other monthly fees are spread across your monthly invoices. As of . Calculation scope.
  • Annualized cost. Annualized cost is the total fee divided by the cash advanced, scaled to a year. It is a comparison figure, not a disclosed annual percentage rate. As of . Calculation scope.
  • Not modeled. Recourse, chargebacks, and contract minimums are not modeled. As of . Calculation scope.
  • Rounding. Results round only when displayed. As of . Calculation scope.

How the math works

We look at $1,000 of invoices. The advance is your advance rate times $1,000. The fee is either a flat percent of the invoice, or a percent for each period your customer takes to pay, with any started period counting in full. If you add other monthly fees, we spread them across your invoices and add them in. You keep $1,000 minus the total fee. The reserve is what is left after the advance and the fees. It is released once your customer pays. To get the monthly figure, we scale the fee by your monthly invoices. To get the annualized cost, we divide the total fee by the cash advanced and scale it to a year using how long your customers take to pay. Slower-paying customers cost more under a per period fee, because more periods start.

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Frequently asked questions

What are the advance and the reserve?

The advance is the share of the invoice the factor pays you up front. The reserve is the rest, held until your customer pays. When the invoice is paid, you generally receive the reserve minus fees. See factoring.

What is the difference between a flat fee and a per period fee?

A flat fee is one percent of the invoice, however long your customer takes. A per period fee is charged again for each period the invoice stays open, so slow payers cost more. Ask which one a provider uses and how it counts a period.

Why do days to pay matter?

With a per period fee, every extra period adds a charge. For the annualized figure, the same fee over a shorter time works out to a higher annual cost.

Is the annualized cost the same as an APR?

No. It is a comparison number based on the cash advanced and the days to pay. A provider's own figure, where a state requires one, may be calculated differently. Compare total dollars as well.

What does this not include?

Recourse and chargebacks, contract minimums, termination fees, and any fee not on this form. Read the full contract. See accounts receivable financing for a related option.

Will my customers know I use a factor?

Often, yes. In freight factoring, customers commonly get a notice telling them to pay the factor, and under the Uniform Commercial Code a customer who pays you after that notice may still owe the factor. See factoring.

Sources

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