Calculate the real cost of invoice factoring vs waiting for customer payment.
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Factoring fee = Invoice amount × fee rate × (days to payment / 30). Effective APR = (total fee / invoice amount) × (365 / days) × 100. Compare to your opportunity cost of waiting.
Invoice factoring sells your unpaid invoices to a factoring company at a discount (typically 2-5% fee) to get immediate cash instead of waiting 30-90 days.
Factoring fees range from 1-5% of invoice value per 30 days. A $10,000 invoice factored at 3% costs $300. Annualized, this equals 36% APR.
When cash flow gap is killing growth. If you can deploy factored cash to earn 40%+ return (new project, bulk discount purchase), factoring can be worth it.
Factoring: you sell the invoice, factor collects payment from client. Financing: you borrow against invoice, you still collect from client and repay the lender.
Notify customers professionally that payment goes to the factor. Many large companies use factoring — it's common in construction, staffing, and transportation.
Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.