For businesses interested in financing using invoice factoring, BlueVine offers factoring in amounts ranging from $5,000 to $5 million per month with discount rates starting as low as 0.25% weekly. Unlike many invoice factoring companies, BlueVine will not interact directly with your customers. You can apply online and receive approval in as little as 10 minutes.
How to Read Your Invoice Factoring Calculator Results
- Invoice amount: This is the amount of the invoices that you are including in your factoring agreement—the primary number by which all of the outputs are calculated.
- Annual percentage rate: The average APR for invoice factoring ranges from 28% to 60%, and includes all fees and other financing charges in addition to interest.
- Cost of capital: This is the total cost of financing represented in a whole dollar amount. This number represents the total financing charge you will pay the factoring company.
- Next steps: Once you have used the calculator to determine the costs associated with invoice factoring, you can easily compare the APR to other forms of financing.
How the Invoice Factoring Calculator Works
Our online factoring calculator will help you convert the factor fees and discount rates into an effective APR. This will allow you to more easily compare the cost of this form of financing to other financing types. Once it has the factor fees, repayment terms, and discount rates, the calculator will generate the overall cost of capital in whole dollars, as well as the associated APR.
Invoice Factoring Calculator Inputs
To use the invoice factoring calculator effectively, you will need to have access to certain information pertaining to prospective financing terms. You will need the amount of the invoices you are factoring, the advance rate, the payment frequency, the factoring fee, and the amount of any additional fees charged by the lender.
The information you will need to input into the calculator is:
The invoice amount is the total amount of the invoices that you are factoring. If you are factoring multiple invoices, this will be the sum of all invoices being factored. Some invoice factoring companies have a minimum amount that you are allowed to borrow against, so review the requirements of your lender to ensure you are meeting this value.
Invoice factoring companies do not advance the full amount of the invoices that are being factored. Your factoring agreement may express this as an advance rate; for example, an 80% advance rate would mean that you will receive 80% of the invoice value upfront. It may also be represented as a holdback percentage: for example, the factoring company may have a holdback percentage of 25%, meaning that they retain 25% of the invoice value and advance 75%.
When using this calculator it’s important to enter the advance rate rather than the holdback percentage. If you are only provided a holdback percentage, you can calculate the advance rate by subtracting the holdback percentage from 100%. For example, a holdback percentage of 15% would equate to an advance rate of 85%.
100% – 15% (Holdback Percentage) = 85% (Advance Rate)
The payment frequency is how frequently payments are collected on the invoices due. We’ve provided the three most common options for payment frequency: daily, weekly, or monthly. The frequency with which payments are made can affect how long it takes to repay the factored amount and impact the annual percentage rate of the loan.
The factor fee is the amount the factoring company charges for the advance of funds. This is similar to an interest rate and is often referred to as the discount rate in invoice factoring agreements. The typical factoring fee—or discount rate—ranges from 0.5% to 5% of the amount factored.
If there are any additional fees that the lender charges, the total of these fees would be included here. Some examples of additional fees you may encounter include origination fees, processing fees, and lockbox fees. Lenders may list these fees as a fixed dollar amount, or as a percentage of your loan amount. If the fee is a percentage of the loan amount, you will need to calculate the dollar value before entering it into the calculator.
Invoice Factoring Calculator Outputs
Once you enter information into the input fields, the calculator will complete a number of calculations for you. These outputs include the amount of the initial advance (in dollars), the total amount held in reserve, the effective annual percentage rate (APR), and the remaining amount you can expect to receive from the invoice factoring company when the invoices have been paid by your customers.
The outputs produced by the calculator are:
Amount of Advance
The amount of advance is the amount you can expect to receive from the factor initially. This is equal to the amount of the invoices factored multiplied by the advance rate of the factor. For example, if the advance rate is 80%, this amount will be equal to 80% times the amount of the invoices included in the factoring agreement.
Invoice factoring companies do not advance the entire amount of the invoices you borrow against; rather, they only advance a percentage. The amount of your invoices that is not advanced to you is called the reserve. This field represents the amount retained in reserve by the lender.
The effective annual percentage rate (APR) is determined by dividing the amount of the factored invoices by the amount of the invoices factored, less the cost of capital, and then dividing that quotient by the annualized payment frequency. This results in a percentage that represents the APR for the given financing scenario.
Converting the cost of capital into APR allows you to more accurately compare the cost of invoice factoring to other financing options, such as small business loans, lines of credit, or credit cards. You can quickly see which financing option is charging a higher rate in comparison to the amount being borrowed.
Receipt Upon Payment of Invoice
Once the invoice has been paid by your customer, the amount held in reserve, less the interest and fees charged on your advance, will be returned to you. This amount is represented as your receipt upon payment of the invoice.
When & How to Use the Online Factoring Calculator
Business owners considering invoice factoring as a form of financing may want to use this calculator to determine the expense to their business for receiving an advance on their existing invoices. This calculator can be used proactively before signing a factoring agreement, or retroactively to determine the costs associated with current invoice factoring financing.
What’s Not Included in the Invoice Factoring Calculator
This online factoring calculator only determines the APR and costs associated with one round of invoice factoring. For businesses that continue to factor invoices, the calculator will need to be re-run to determine the costs and APR associated with each round of financing. Additionally, if you are utilizing this online factoring calculator to estimate costs based on estimated numbers, it will not be as precise as using actual values for a specific agreement.
Pros & Cons of Invoice Factoring
Some of the benefits of invoice factoring include that there is generally no minimum credit score requirement, you can get fast funding, and your accounts receivables will be handled by experts. Conversely, factoring can be expensive, and the factoring company may have direct contact with your customers, selling your invoices relinquishes a level of control.
Pros of Invoice Factoring
Some advantages of invoice factoring include:
- The creditworthiness of your customers is considered: With invoice factoring, your customer’s creditworthiness is more important than yours, meaning you’re able to get financing with poor credit.
- You get to work with accounts receivable experts: Since this is what your invoice factoring company does on a daily basis, it likely has really good accounts receivable management techniques.
- Invoice factoring provides a quick source of capital: You can typically get approved within two to seven days and funded in one to three days after that.
Cons of Invoice Factoring
The cons of invoice factoring include:
- The factor may communicate with your customers: You can expect your invoice factoring company to contact your customers, and the level of interaction will vary by provider.
- It can be an expensive form of financing: With invoice factoring, not only are the interest rates higher than with other types of financing, but there is also the potential for additional fees.
- Your invoices are sold: A feature of invoice factoring is that you’re selling, or assigning, select invoices to the factoring company. While this gives you an immediate source of cash, you’re also giving up some control over your accounts receivables.
Alternatives to Invoice Factoring
Invoice factoring is a great financing solution for businesses with business-to-business and business-to-government invoices due within 90 days. However, it may not be the right solution for every small business. Some alternative options for working capital include a small business loan, a small business line of credit, a small business credit card, and invoice financing.
Some common alternatives to invoice factoring are:
Small Business Loan
A small business loan can provide you with the working capital your business needs, and often offer longer repayment terms than you would receive with invoice factoring. Some short-term lenders offer repayment terms of up to five years at similar APRs to invoice factoring. Small business loans work well for business owners that want to reduce their payment amounts by spreading repayment over a longer term.
Small Business Line of Credit
A small business line of credit allows you to make advances against a pre-established credit limit. Then you only pay interest on the money you’ve borrowed. This is a great alternative to invoice factoring if you’re only looking to bridge a small short-term need and if you have good credit. Some of the best small business lines of credit can even provide you funding in as little as one to two days.
Small Business Credit Card
A small business credit card is another short-term financing option popular among small businesses. A business credit card is a good option for businesses that have small or recurring working capital needs, want to manage employee expenses, or earn rewards. Some of the best small business credit cards offer reward incentives that can help you earn cash rewards, travel, or get introductory 0% interest to help build your business.
Invoice financing—accounts receivable financing or A/R financing—is a technology-based financing solution. Invoice financing does not require the sale or assignment of invoices, and there is no third-party interaction between your provider and your customers. This makes invoice financing faster and easier than traditional invoice factoring.
Financing methods, like invoice factoring that charge fees and rates other than standard interest rates are often difficult to understand. Our online factoring calculator takes the guesswork out of the true costs associated with this type of financing by providing you with the overall cost of capital, and the effective APR for your financing.
BlueVine offers invoice factoring from $5,000 to $5 million per month at discount rates starting as low as 0.25% weekly. Unlike many invoice factoring companies, BlueVine will not interact directly with your customers. You can apply online and receive approval in 10 minutes, and funding as soon as the next business day.