Invoice Factoring Effective APR Revealer

Uncover the true cost of an invoice factoring offer by annualizing the discount fee against the cash you actually receive after advance rates and reserve holdbacks. Enter your expected payment window to translate short-term financing into an APR you can compare with loans or lines of credit.

Enter the total amount your customer owes on the invoice before any fees.
Percentage of the invoice the factor wires upfront.
Enter the discount or factoring fee charged for the collection period.
Use the expected number of days until the customer pays the invoice in full.
Optional — assume 0% reserve if left blank

Informational only — confirm terms with your finance provider before committing.

Examples

  • $75,000 invoice, 85.0% advance rate, 2.80% fee, 38-day payment, no reserve ⇒ 31.64% APR
  • $42,000 invoice, 90.0% advance rate, 3.10% fee, 32-day payment, 5% reserve ⇒ 41.36% APR

FAQ

Can I compare spot and recurring factoring programs?

Yes. Enter the respective advance rate, fee, and expected payment timeline for each scenario to contrast the APR outputs side by side.

How do reserve releases impact the calculation?

If your factor releases the reserve after customer payment, include that percentage in the optional field so the advance reflects the temporary holdback.

Does the tool account for tiered discount schedules?

No. For tiered pricing, run the calculator for each tranche separately and average the APR by weighting each tier by days outstanding.

How should I factor in additional service fees or wire charges?

Add any flat servicing fees to the discount fee portion by dividing the extra cost by the invoice value and increasing the fee percentage before running the calculation.

Additional Information

  • Period cost equals the discount fee percentage multiplied by the full invoice value before reserves are returned.
  • Net cash advanced is the upfront wire after applying both the advance rate and any temporary reserve holdback.
  • APR is annualized using a 365-day year so you can compare against bank credit facilities or merchant cash advances.
  • If the reserve is released later it does not reduce the APR because you are still financing that portion during the collection window.

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