The formulas
- Fee = face x fee rate x periods (per started block or prorated)
- Advance = face x advance rate
- Rebate = face - advance - fee
- Effective annual cost = fee / advance x 365 / days
How it works
Factoring sells an invoice to a funder for cash now. The funder advances part of the face value, collects from your customer, then pays the rest less its fee. The fee is quoted per period on face value, which hides its true cost because you only receive the advance.
Annualizing the fee over the cash advanced gives a rate you can compare with a credit line. Fee schedules vary: some funders charge per started 30-day block, others by the day, and some add service or wire fees. Add any fixed fees to the fee rate before you compare.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
Why is the effective rate so much higher than the quoted fee?
The fee is on full face, the cash is the smaller advance, and short periods annualize to large rates.
What is recourse factoring?
You must buy back invoices the customer does not pay. Non-recourse costs more because the funder takes the credit risk.
How is factoring different from a borrowing base line?
Factoring sells the invoices. A borrowing base line borrows against them and you keep collecting.
Formulas on this page are the standard definitions.
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.