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Invoice Factoring Calculator: What Can You Afford?

Plug in the numbers to see what invoice factoring will cost you

How Much Will Invoice Financing Cost Your Business?

Invoice financing—sometimes called invoice factoring or accounts receivable factoring—solves a unique cash flow problem for many small business owners:

You’re waiting for your customers and clients to pay your invoice, and in the meantime, you’re struggling to run a business with tied up cash flow.

Invoice factoring helps you receive the cash you’re owed from your clients now.

But of course, you’ll pay for the convenience of having cash now, rather than later.

Just how expensive can invoice factoring be? Use our invoice factoring calculator to find out.

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Is Invoice Financing Your Lowest-Cost Financing Option?

Invoice factoring solves a common cash flow issue. You can get fast cash for your outstanding receivables—instead of waiting for your customers to pay up.

But as always, fast cash comes at a price. Make sure invoice financing is your most affordable financing options by shopping around the top business loans.

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How Does Invoice Financing Work?

A frustrating aspect of running a business is waiting for your invoices to paid—especially if certain customers are always late to pay up.

And the worst part: Frequent late-payments mean that you don’t get to funnel the money you’re owed back into your business right away.

If your cash flow is tied up for this exact reason, then your business has opportunity to solve its cash crunch with invoice financing—one of the best business loans for cash flow issues.

With invoice financing—often referred to as invoice factoring or accounts receivable factoring—you have the chance to get paid for outstanding invoices right away.

Read more about invoice financing

For Your Invoice Factoring Calculator: Amounts, Rates, and Terms

Here’s a walkthrough of just how invoice financing works:

A factoring financing company or invoice financing company advances you a certain percentage of the outstanding invoice you’re looking to finance.

While the maximum percentage they’ll advance you varies from company to company, generally, advance percentages range from 85% to 100%. So your “loan amount” will be around 85% of the value of the outstanding invoice.

The remaining percentage the company doesn’t advance you gets held in reserve.

Once you receive the funds from an invoice financing company, you can use them how you please to continue operating your business.

With invoice financing, there’s no set “term” to the financing agreement—it all depends on how long it takes your clients to pay up.

Each week it takes your customer to pay their invoice, the factoring company typically charges what’s called a “factoring fee”—a percentage of the total loan amount. That’s the “rate” you’ll be plugging into your invoice factoring calculator. The exact fee you’re charged varies from company to company, but typically ranges between 1% and 3%.

This fee gets charged on the reserve amount the invoice factoring company holds onto. Once your client pays up, you’ll be given back the reserve amount—less the fees that were charged.

What Other Fees Can You Expect with Invoice Financing

When it comes to this type of financing (and how you’ll use your invoice factoring calculator), the factoring fee is the fee to pay attention to.

However, just the factoring fee doesn’t show you what your total APR on your invoice factoring calculator will be. You’ll also need to pay attention to the other fees that an invoice factoring company could tack onto the financing.

Here are the other fees to pay attention to:

Processing Fee

Almost all invoice financing offers come with processing fees. A processing fee is much like an origination fee, charged for processing the agreement and loan.

A processing fee will generally be around 3% of the value of the outstanding invoice—charged on the reserve amount.

Collection Fee

With some factoring companies and some agreements, the company will take over collection of the invoice for you. This means that your customer will pay your invoice factoring company—instead of you—directly.

While this takes the hassle out of collecting from late-paying customers, the terms of your financing agreement will be fully clear to your customers.

There are advantages and disadvantages to consider with this type of invoice financing.

But as it pertains to your invoice factoring calculator, you should be aware of any collection fees the factoring might charge you for the service of collecting your clients’ payments.

What Will Invoice Financing Cost? Here’s an Example to Plug Into Your Invoice Factoring Calculator

Let’s put these words into action—how does your invoice factoring calculator work in action?

Say you have an outstanding invoice of $100,000, with 90 day terms. An invoice financing company will likely advance you 85% of that, holding the remaining 15% in reserve. After a few business days, you’ll get $85,000 in your bank account, and the factoring company will hold the remaining $15,000 in reserve.

The factoring company carries a processing fee of 3% of the $100,000 outstanding invoice upfront. Moving forward, it takes your client 2 weeks to pay the invoice in full. Because the invoice factoring company was taking 1% of the invoice value in factoring fees each week it takes you to pay—you’ll pay a total of 2% of the invoice value in factoring fees.

After the deal is done, the factoring company takes a total of 5% ($5,000) in fees from the reserve amount—meaning you get $10,000 back from the total reserve amount of $15,000.

Effectively, the invoice financing agreement cost you $5,000.

How Does This Invoice Factoring Calculator Work?

Once you’ve gotten your invoice financing offer and agreement, it’s pretty easy to see what the deal will cost you with an invoice factoring calculator.

First, you need to know the total value of the invoice that you’re looking to finance—that’s easy.

Next, you’ll need to think through the amount of time the invoice will go unpaid. You could either plug in the total net terms of the given invoice (typically 30, 60, or 90 days) into the invoice financing calculator—translated into weeks. This will give you the maximum amount you’d end up paying in factoring fees.

Or, if you’re working with a late-paying customer that you know particularly well, you’ll probably have a good guess of how many weeks it’ll end up taking them to pay you.

Next you’ll need to find the factoring fee you’re quoted each week, and plug the percentage the reserve amount will be charged each week into your invoice factoring calculator.

Finally, look for any other fees quoted in your invoice financing agreement—namely, a processing fee.

Once you have all that information plugged into your invoice factoring calculator, you’re on your way to seeing just what the financing will cost you after fees.

Learn more about invoice financing:

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Which Invoice Factoring Companies Should You Work With?

There are a number of different companies out there who can help you with your invoice financing needs. However, they all operate a little differently from company to company.

Some of the best factoring companies operate 100% online, making the invoice financing process fast and easy. All you really have to do is be approved with an invoice factoring company to get started. Once you’ve been approved, you’ll be able to submit invoices (usually electronically) to be financed as you need them.

Many factoring companies even sync up with your accounting software to make it even easier to get the cash you’re owed for your business.

Check out reviews of two of the best factoring companies available to business owners, BlueVine and Fundbox.

The Top Factoring Companies to Work With:

Interested in Invoice Financing? Here are 3 Other Loan Products to Consider

You might be pursuing invoice financing for a variety of reasons.

You could have tied up cash flow from late paying customers, or you’re looking for a loan product that’s slightly easier to qualify for. (Invoice financing is a self-collateralizing loan, which makes it slightly easier to qualify for.)

Because you’re essentially paying the lender for the service of fast cash now, invoice financing can be a pricey way to get the money you’re owed.

If your invoice factoring calculator shows an APR that’s a little too high for you, see if you’d qualify for these three other loan products.

1. Business Lines of Credit

Borrowers looking to solve cash flow issues with invoice financing should also consider applying for a business line of credit.

A business line of credit is the ultimate flexible financing option. You can draw capital from a pool of funds whenever you need to, smoothing out your cash flow month-by-month.

The best part of a business line of credit is that you only pay interest on the funds you draw from it, and once you pay back, your credit line gets refilled to its original amount.

There are both affordable and more expensive business lines of credit available. The most affordable business lines of credit offer large amounts of financing (up to $1 million) at low rates (between 7% and 30%), but are harder to qualify for and take a longer time to fund.

Read more about business lines of credit

2. Term Loans

If you need working capital for your business, a term loan is another financing option to pursue.

Term loans are like your classic business loan—they’re probably what pops into your head first when you think of the concept of a loan.

You receive a lump sum of capital to use for your business, which you’ll pay back over a set period time with interest.

Term loans offer large amounts of capital (up to $1 million), at some of the lowest financing rates around—interest rates range from 6.5% to 30%.

Read more about term loans

3. Equipment Financing

Similarly to invoice financing, equipment financing is a possibility for business owners in very specific financing situation—you need capital to purchase a piece of equipment.

But what makes it similar to invoice financing is the fact that an equipment loan is also a self-securing loan. With invoice or equipment financing, the invoice or piece of equipment act as collateral to the respective loans. If you default on either of them, the invoice or equipment represent a valuable asset that a lender could seize to recoup their losses.

For this reason, an equipment loan could be slightly easier to qualify for than other types of loans, like longer-term loans and long-term lines of credit.

Read more about equipment loans

See What Other Loan Products Will Cost You

There are a lot of business loans on the market—not just invoice financing. See what they'll cost you with our business loan calculators.

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Last updated November 20, 2020