Your company invoiced 50,000 but the customer pays in 45 days, and you need liquidity now. Invoice factoring gives it to you: you sell the invoice to a factor who advances most of the amount immediately, keeping a fee. But how much does it really cost? A 3% fee seems small, but on a 45-day invoice it equals an annual rate of nearly 29%. This calculator shows the advance, the fee, the net received and above all the annualized cost, to understand the real cost of the financing.

What invoice factoring is

Factoring is a form of working-capital financing: a company sells its unpaid invoices to a factor (a finance company) that advances immediate liquidity, instead of waiting for the customer to pay in 30, 60 or 90 days. It is widely used by B2B companies with long-payment customers, to avoid tying up cash in trade receivables. In exchange for the advance, the factor keeps a fee. It solves a timing problem: you have the revenue (the invoice), but not yet the money.

How the calculation works

Factoring has three key numbers. The advance is the part of the amount you receive immediately: amount × advance rate. With 50,000 and an 85% advance, you receive 42,500 immediately. The fee is the cost of the service: amount × fee percentage, for example 50,000 × 3% = 1,500. The net amount is how much you collect in total: the invoice minus the fee, that is 48,500 (the advance now, plus the reserve when the customer pays, net of the fee). Simple in appearance, but the real cost shows only when annualized.

The immediate advance and the advance rate

The advance rate is the percentage of the invoice the factor pays you immediately, typically between 80% and 90%. With an 85% rate on 50,000, the immediate advance is 42,500: it is the liquidity you get today. The factor does not advance 100% to protect itself from possible disputes, discounts or non-payments: the non-advanced part (the reserve) is paid later, when the customer settles. A higher advance rate means more cash immediately, but factors modulate it based on the risk of the customer and the sector.

The factoring fee

The fee (or factoring discount) is the factor's compensation, usually a percentage of the invoice amount: often 1-5% depending on volume, risk and days of deferral. With 3% on 50,000 that is 1,500. Beware: it is a "flat" fee applied to the whole amount for a short period (the days until payment), so as a percentage it seems small, but relative to time it is much higher than it appears. Some structures apply a fee per period (e.g. per 30 days), which increases the cost if the customer pays late.

The reserve and the net amount

The reserve is the non-advanced part: amount minus advance, that is 50,000 − 42,500 = 7,500. It is not lost: the factor pays it when the customer pays the invoice, keeping (or having already kept) the fee. The total net amount the company collects at the end is therefore the invoice minus the fee alone: 50,000 − 1,500 = 48,500. In practice: 42,500 immediately, plus 6,000 (reserve 7,500 − fee 1,500) when the customer settles. The "cost" of factoring is the fee, that is the difference between the invoice and what you collect.

The annualized cost: the key to everything

Here lies the most important insight. A 3% fee seems cheap, but it must be related to the time for which you get the advance. If the customer pays in 45 days, you are paying 1,500 to have 42,500 for 45 days: annualized, it is a rate of about 28.6% (fee / advance × 365 / days). It is a way to compare factoring with a bank loan or a credit line, whose cost is expressed as an annual rate. Factoring, which seems a modest fee, is often one of the most expensive forms of financing once annualized: this calculation makes it evident.

How the calculator works

Enter the invoice amount, the advance rate, the factoring fee (as a % of the invoice) and the days until payment of the customer. The calculator returns the immediate advance, the fee, the total net amount received, the APR-equivalent annualized cost and an assessment. It is the quickest tool to understand how much liquidity you get and, above all, how much the financing really costs compared to the alternatives.

The values you need

You need four numbers. The invoice amount you want to sell. The advance rate offered by the factor (often 80-90%). The fee as a percentage of the amount (typically 1-5%; check whether it is "one-off" or per period). The days until payment of the customer: how many days until the invoice is collected, the factor that determines the annualized cost. If the fee is structured per period (e.g. 1% per 30 days), calculate the total expected fee and enter it as an overall percentage.

Interpreting the annualized cost

The annualized equivalent cost allows to judge factoring:

The annualized cost explodes when the invoice is short-term (few days) and the fee is high: the same 3% fee costs much more annualized over 30 days than over 90.

Recourse and non-recourse factoring

There are two types of factoring, with different risks:

Non-recourse transfers the credit risk to the factor, at a higher cost; recourse is cheaper but leaves the risk with the company. Always verify which type the contract provides.

Example: same invoice, different conditions

With an invoice of 50,000 and an 85% advance (42,500), how the annualized cost changes:

At equal fee, the shorter the deferral the higher the annualized cost: factoring is more convenient on long-maturity receivables than on short ones.

Factoring and other forms of financing

Factoring must be compared with the alternatives for working capital. A bank credit line or an overdraft usually cost much less in terms of annual rate, but require creditworthiness and guarantees and are less fast. The early-payment discount offered to customers is another lever. Factoring has the advantage of speed and the fact that it is based on the quality of your customers (not just yours), useful for young or rapidly growing companies; the disadvantage is the high cost once annualized. It should be used when the immediate liquidity is worth more than the cost.

What the calculation does not consider

The calculation is a simplified estimate. It assumes a single fee on the amount: many contracts have more complex structures (base fee + interest on the advance for the period, management fees, fixed costs per invoice, minimums). It does not model recourse vs non-recourse factoring or the risk of non-payment. The annualized cost is an approximation (simple formula, not a compound rate) useful for comparison, not an exact contractual APR. Always verify all the cost items of the factoring contract, which can significantly increase the real cost.

Common mistakes

• Judging factoring only by the percentage fee, ignoring the annualized cost.
• Forgetting that a low fee over few days is expensive once annualized.
• Not considering per-period fees that increase if the customer pays late.
• Confusing recourse and non-recourse (who bears the default risk).
• Ignoring additional costs (management, minimums, per-invoice costs) besides the fee.

How to use the calculator

Enter amount, advance rate, fee and days until payment. Read the immediate advance to know how much cash you get right away and the annualized cost to understand the real cost. Compare the latter with the rate of a credit line or a loan to decide whether factoring is worth it. Simulate different days and fees to see how the cost changes: you will discover that factoring is more convenient on long-maturity receivables. Always verify all the items of the contract besides the base fee.

Practical example

Your company sells an invoice of 50,000 to a factor, with an advance rate of 85%, a fee of 3% and a customer who pays in 45 days. The calculation gives an immediate advance of 42,500, a fee of 1,500, a total net amount of 48,500 and an annualized cost of about 28.6%, with the verdict "in the norm for factoring: typical sector cost". You get 42,500 of liquidity immediately, but the "modest" 3% fee equals an annual rate of 28.6%: much more expensive than a bank loan. It makes sense if the immediate liquidity is worth this cost. Enter your numbers for your real situation. The calculation assumes a single fee and does not model complex structures (interest on the advance, management fees, minimums), recourse/non-recourse or credit risk; the annualized cost is an approximation for comparison. It is an informational estimate, not a financing offer or advice.

Frequently asked questions

What is invoice factoring?

It is working-capital financing: you sell unpaid invoices to a factor who advances immediate liquidity, instead of waiting for the customer to pay in 30-90 days. In exchange it keeps a fee. It is widely used by B2B companies to avoid tying up cash in receivables.

How is the advance calculated?

Advance = invoice amount × advance rate. With 50,000 and an 85% advance, you receive 42,500 immediately. The rest (the reserve) is paid to you when the customer pays, net of the fee.

What is the annualized cost and why does it matter?

It is the fee translated into an equivalent annual rate: fee / advance × 365 / days. A 3% fee on a 45-day invoice equals about 28.6% per year. It serves to compare factoring with a loan or a credit line, whose cost is in annual rate.

Why does a 3% fee cost so much?

Because it is applied to the whole amount for a short period. Paying 3% to have liquidity for 45 days equals, on an annual basis, a much higher rate. The shorter the deferral, the higher the annualized cost: the same fee costs more over 30 days than over 90.

What is the reserve?

It is the non-advanced part of the invoice (amount − advance): with an 85% advance on 50,000, the reserve is 7,500. It is not lost: the factor pays it when the customer pays the invoice, keeping the fee. The total net amount you collect is the invoice minus the fee alone.

What is the difference between recourse and non-recourse?

In non-recourse the factor takes on the default risk: if the customer does not pay, the loss is theirs. In recourse the risk stays with the company, which must return the advance. Non-recourse costs more because the factor takes on the risk.

What is a reasonable factoring cost?

In annualized terms: below 15% is contained, 15-30% is in the norm for factoring, 30-50% is high, over 50% is very expensive. But it depends on the days: the same fee is more expensive over short deferrals. Always compare with the rate of other financing forms.

Is factoring worth it compared to a bank loan?

In terms of pure cost, usually not: a credit line costs less in annual rate. Factoring is worth it for speed, because it is based on the quality of your customers (useful for young companies without credit history) and when the immediate liquidity is worth more than the higher cost.

Is the fee always single?

No. Some contracts apply a single fee on the amount, others a fee per period (e.g. 1% per 30 days), others still a base fee plus interest on the advance. If the customer pays late, the per-period structures increase the cost. Always verify the exact structure.

What happens if the customer does not pay?

It depends on the type of factoring. In non-recourse the loss is the factor's. In recourse you must return the advance to the factor. This is a crucial aspect of the contract to clarify beforehand, because it determines who bears the credit risk of your customers.

Does the calculation include all the costs of the contract?

No, it assumes a single fee on the amount. Real contracts may have management fees, minimums, fixed costs per invoice and interest on the advance that increase the cost. The calculated annualized cost is an approximation for comparison: verify all the items of the contract.

For which companies is factoring most suited?

For B2B companies with solid customers who pay long-term (30-90 days), that need immediate liquidity and grow rapidly. It is useful when the bank is slow or requires guarantees you do not have, because the factor looks mostly at the quality of your customers.

Is it financial advice?

No, it is an informational tool. It assumes a single fee, does not model complex structures (interest, fees, minimums), recourse/non-recourse or credit risk; the annualized cost is an approximation for comparison. For a real contract verify all the items and assess the alternatives.

Updated July 2026