Factoring cost calculator: what an advance really costs
Factoring quotes sound small because the fee is a percentage of the invoice. Enter a typical invoice below and see the advance you'd receive, the fee at your clients' real payment speed, and the effective annualized cost — the number you'd use to compare it against any other financing.
- Advance you receive up front
- $22,500
- Estimated factoring fee (3.0% of invoice)
- $750.00
- Reserve released when the client pays
- $1,750.00
- Effective annualized cost (approx.)
- 27%
The fee measured against the $22,500 you actually held, annualized over 45 days. This is why a “2.0% fee” is not 2.0% APR — you pay it on the full invoice for a fraction of a year.
Benchmark: borrowing the same $22,500 on a 25% APR line of credit for 45 days would cost about $693.49 in interest — 1.1× less than this fee. If your agency can qualify for the cheaper product at the size you need, price that first. Factoring earns its premium on qualification, speed, and capacity that scales with billings.
Estimates for education only — not a quote, offer, or the pricing of any partner. Our funding partners make all credit and pricing decisions, fee structures vary (flat, tiered, per-30-day), and actual terms come from the partner's agreement. Always read the fee schedule, advance rate, reserve mechanics, and recourse terms before signing.
Factoring costs, straight answers
Why is the effective annualized rate higher than the fee makes it sound?
A "2% fee" sounds like 2%, but it's charged on the full invoice while you hold only the advance (often 90%+ of the invoice) for only the weeks the invoice is outstanding. Annualize the fee against the money you actually had, for the time you actually had it, and the true rate of the financing is far higher than the headline fee. This calculator does that math explicitly.
What's the difference between a flat fee and a tiered per-30-day fee?
Some factoring partners charge a flat percentage regardless of when the client pays; most quote a rate per 30 days outstanding, often in tiers or increments (e.g., a rate for days 1–30, more for 31–45, and so on). The same headline rate can produce very different costs depending on how the tiers break — always ask for the full fee schedule and model it against how fast your clients actually pay, not their stated terms.
What do recourse and non-recourse mean for cost?
Recourse factoring (you buy back invoices your client never pays) is the common, lower-cost structure. Non-recourse shifts defined credit risk — typically the client's insolvency — to the partner, usually at a higher fee and with stricter client-credit standards, and it rarely covers disputes or short-pays. Whether the extra cost is worth it depends on your client book; read the non-recourse definition closely before paying up for it.
Is factoring ever the wrong choice for a staffing agency?
Yes. If your clients genuinely pay fast, if your margins can't absorb the fee even when it's priced into bids, or if you qualify today for an adequately sized bank line of credit at bank pricing, cheaper money exists. Factoring earns its cost when it lets you make payroll confidently and accept orders you'd otherwise decline — the point of this calculator is to make that trade visible before you sign anything.
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