Work out factoring cost instantly with clear inputs, formula shown and shareable results.
Factoring has two charges: a service fee on the face value of the invoice and a discount charge, effectively interest, on the cash advanced until the customer pays. Expressing both against the cash you actually received — assumed over a 60-day collection period — gives the true annualised cost.
Cash advanced
Advance = Invoice value x Advance rate %
Total cost
Cost = (Invoice value x Service fee %) + (Advance x Discount rate x Days / 365)
Because the service fee is charged on the full invoice but you only receive the advance, and you hold that cash for weeks rather than a year.
Recourse factoring is cheaper because you retain the credit risk. Non-recourse prices in the bad debt protection.