Invoice Factoring Cost and Effective APR
What factoring an invoice costs, what lands in the account today, and the rate that works out to.
Example
You enter
- Invoice amount ($) 2000
- Advance rate (%) 90
- Factoring fee (%) 3
- Days until customer pays 30
You get
- Advance usd 1800
- Reserve released later $140.00
- Effective APR 40.6%
No published worked example is on file for this calculation. It is checked against a hand-worked derivation of its method.
Details, formula, and sources
ScopeAdvance = invoice x advance%, fee = invoice x fee%, reserve = the rest, effective APR = (fee%/advance%) x (365/days). $2,000, 90% advance, 3% fee, 30 days -> $1,800 now, $140 reserve, 40.6% APR; paid in 15 days it annualizes to 81.1%. The factoring agreement governs.
Formula or tableadvance = invoice x advance%; fee = invoice x fee%; reserve = invoice - advance - fee; APR = (fee%/advance%) x (365/days) x 100.
Source and editionInvoice (freight) factoring cost and effective APR, from freight-factoring practice, by name.
Free accessThe advance/fee/reserve split and the fee-to-APR annualization are public arithmetic; the rates and terms come from the factoring agreement.
What governsEstimate. AHJ and licensed professional govern.
API field namesinvoice_usd, advance_pct, fee_pct, days_to_pay, advance_usd, reserve_usd, apr_percent
- Split advance = invoice x advance%, fee = invoice x fee%, reserve = the remainderfactoring practice
- Effective APR (fee%/advance%) x (365/days) x 100annualization
- Agreement governs recourse, minimums, reserve release, and ancillary fees set the true costscope of this tile