Factoring isn’t a loan — it’s a sale of an invoice at a discount, with a flat fee charged regardless of whether the factor collects in 10 days or 60.
How it works
An advance (typically 80-95% of the invoice) is paid upfront; the flat factoring fee is charged on the full invoice amount. Annualizing that flat fee against the advance and the actual collection period — the same approach this site’s payday loan APR calculator uses — reveals the true cost a flat percentage alone hides.
What this does not include
Real factoring agreements often have tiered fees that increase the longer an invoice goes unpaid — this calculator models a single flat fee for a known period, not a tiered schedule.
How to use this calculator
- Enter the invoice amount, advance rate, and flat factoring fee.
- Enter how many days until the invoice is expected to be paid.
Frequently asked questions
Why does a shorter collection period raise the annualized cost?
Because the same dollar fee is being charged for a shorter window — spreading a fixed cost over fewer days always raises its annualized rate.
Is factoring the same as a business loan?
No — factoring sells an asset (the invoice) rather than borrowing against it, which is why it doesn’t show up as debt on a balance sheet the way a loan does.
Why is factoring so much more expensive than a bank loan?
Speed and accessibility — factoring is typically available to businesses that can’t qualify for traditional financing, and the cost reflects that risk and convenience.
