True cost of selling invoices.

Invoice factoring converts unpaid customer invoices into immediate cash at a cost. The factor advances 70-90% of invoice value now, charges a factoring fee (1-5% per invoice), and may charge interest on the advance until the customer pays. Effective APRs typically run 15-40% annualised - expensive, but often cheaper than alternative short-term debt or stockouts.

100k invoice at 80% advance = 80k cash now. At 2% factoring fee (2k) and 12% interest over 45 days to customer payment (1,183), total cost is 3,183. Effective APR on the advance: 32.3%. Costly, but unlocks cash immediately instead of waiting 45 days.

Factoring makes sense when alternatives are worse: missing payroll, losing a growth opportunity, or stockout while waiting on receivables. It's a poor permanent financing choice - 25-40% APR compounds fast. Businesses using factoring consistently need to fix root cause: slow-paying customers, under-capitalisation, or working capital cycle issues. Treat it as tactical bridge, not strategic funding.

Quick example

With invoice amount of 100,000 and advance rate of 80% (plus factoring fee of 2% and days to customer pay of 45), the result is 3,183.56. Change any figure and watch the output shift — it's often more useful to see the pattern than to memorise the formula.

Which inputs matter most

You enter Invoice Amount, Advance Rate %, Factoring Fee %, Days to Customer Pay, and Interest Rate % (annual). Not every input has equal weight. Flip one at a time toward extreme values to feel which ones move the needle most for your situation.

What's happening under the hood

Advance = invoice × advance %. Factoring fee = invoice × fee %. Interest = advance × rate × days/365. Total = fee + interest. APR = total / advance × 365 / days × 100. The formula is listed in full below. If the number looks off, you can retrace the calculation by hand — that's the point of showing the working.

What to do with a low result

A disappointing result is information, not a judgement. Pick the single input that dragged the figure down most and focus the next quarter on that one factor. Breadth-first improvement rarely works; depth-first on the worst input usually does.

What this doesn't capture

The score is a composite of the inputs you provide. Life context — job security, family obligations, health, housing — doesn't appear in the math but shapes the real picture. Use the number as a prompt, not a verdict.