How does invoice factoring work?

Invoice factoring lets you sell your unpaid invoices to a factoring company (called a factor) at a discount. The factor advances you 70–95% of the invoice value immediately (the advance rate), then collects payment from your customer. Once paid, the factor sends you the remaining reserve minus their fee. You get cash fast without waiting 30–90 days for your customer to pay.

What is a good factoring rate?

Factoring rates typically range from 1%–5% per 30 days, depending on your industry, invoice volume, and customer creditworthiness. Rates below 2% per month are competitive for large-volume clients. Trucking and staffing industries often see 2%–4% rates. Always compare the effective APR — factoring fees translate to 24%–70%+ APR, which is high compared to a bank line of credit.

Invoice factoring vs. bank loan — which is better?

Invoice factoring provides instant liquidity without debt or collateral, but at a higher cost (effective APR of 24–70%+). Bank lines of credit are cheaper (6–12% APR) but require strong credit, collateral, and take weeks to set up. Factoring is better when you need cash immediately, have poor credit, or are a young business. A bank LOC is better for established businesses with strong credit who can wait for approval.

Is invoice factoring good for small businesses?

Yes — invoice factoring is especially useful for small businesses with cash flow gaps caused by slow-paying customers. It does not require good personal credit (the factor cares about your customers' creditworthiness), there is no debt added to your balance sheet, and approval is fast. The main downside is cost: factoring fees reduce your net proceeds by 2–10% per invoice. It works best as a short-term cash flow tool, not a permanent financing solution.

Invoice Factoring Calculator

Calculate your Day-1 cash advance, total factoring fee, effective APR, and see how factoring compares to waiting or a bank line of credit.

📄 Invoice Details

Quick-fill:

Invoice Amount ($)

Factoring Rate (% / month)

Advance Rate (%)

Days Until Invoice Due

Additional Fees ($)

📊 Factoring Summary

Day-1 Cash Advance $21,250

Factoring Fee $900

Reserve (net) $2,850

Net Proceeds $24,100

Effective APR 51.50%

Cost per Day $30.00/day

Discount Rate 3.60%

Cash Flow Timeline

Compare the true cost of invoice factoring against a bank line of credit and simply waiting for your customer to pay.

Bank LOC Rate (APR %)

Opportunity Cost (% / month)

Metric	Invoice Factoring	Bank LOC	Wait for Payment

Cost Comparison