Invoice factoring calculator: discount rate to real APR

Factoring has two prices. The discount fee is quoted as a percentage of the invoice face value, because the face value is the asset the factor is buying. The cash that reaches your account is the advance, a fraction of it. Divide the fee by the face and you get a cost per dollar of receivable; divide it by the advance and you get a cost per dollar you actually had. Only the second is a financing rate, because only the second has a borrower in it.

The gap is exactly the advance rate. At 85 percent, dividing by face understates the cost by 15 percent of itself, in your favor, on every invoice. In the worked example above that is 40.96 percent against a true 48.22 percent a year. Both look like a plausible factoring cost, so the number alone cannot tell you which you are reading. This Invoice Factoring Rate to APR Calculator prints both and labels them rather than quietly picking one.

That is the regulator's arithmetic, not an editorial preference. California's commercial financing rules define the amount financed for a factoring disclosure as the original advance amount minus any prepaid finance charge (title 10, section 900(a)(1)(D)), and the finance charge as the face value on the invoice minus the amount paid directly to the recipient on assignment (section 943(a)(3)), with the reserve subtracted only where the factor reasonably anticipates returning it. Follow those definitions and the denominator is the advance. New York's 23 NYCRR Part 600 builds its table the same way.

The annualization is fixed too: section 940(a) requires the United States Rule or the actuarial method of Appendix J to 12 CFR Part 1026. Appendix J (b)(5)(vii) says that in a single advance, single payment transaction whose term is under a year and is not a whole number of months, the term holds one unit period and a year holds 365 divided by the days in the term. So the rate is the finance charge over the amount financed, multiplied by 365 over the days outstanding.

A flat discount rate is one percentage of face covering a whole recourse period, which eCapital calls a one time cost for the entire recourse period, usually 60 or 90 days. What it hides is time. The fee does not move whether the customer pays on day 12 or day 88, so the same quote can differ by a factor of six once annualized. A flat 3 percent at an 85 percent advance is about 86 percent a year if the invoice clears in 15 days and about 14 percent if it clears in 90. The fast paying customer is the expensive one.

A tiered rate is the common small facility structure: an opening percentage for the first 30 days, then a step per further block of 10, 15 or 30 days. altLINE publishes a schedule opening at 1.5 percent for 0 to 30 days and stepping 0.50 percent every 10 days to 4.5 percent at 81 to 90, and eCapital publishes a split fee of 5 percent for the first 15 days plus 1.0 percent per further 15. What tiering hides is that the cost is a staircase, not a slope. Nobody prorates a step, so an invoice paid on day 41 costs what one paid on day 50 costs, one third more than day 40.

That staircase shows up in the calculator above. On the default structure the annualized cost is 43.68 percent if the invoice is paid on day 30, 48.22 percent on day 45, and 43.21 percent by day 90. Being paid slightly late is worse than being paid much later, because you cross a boundary and then spend the rest of the block amortizing it. The worst day to be paid is the first day of a new tier.

A prime plus facility behaves like a bank line: a benchmark plus a margin, per year, accrued daily on funds employed rather than on the invoice. eCapital's published example is prime plus 3.5 percent. At the 6.75 percent bank prime loan rate in the Federal Reserve's H.15 release of 4 September 2026 that is 10.25 percent, or $544.53 on the same $50,000 invoice held 45 days against $2,500. Check two things: the day count, because a 360 day year turns 10.25 percent into 10.39 without changing the paper, and the monthly servicing fee, which is usually the larger number.

The discount rate is the advertised number and often not the biggest. altLINE publishes $15 to $30 per wire, charged per advance rather than per month, so a business factoring twelve invoices a month pays it 144 times a year. On the facility defaults above, $25 a wire is $3,600 a year, and because it comes out of the advance it also shrinks the amount financed, so it lifts the rate by more than its own size. ACH is the cheap alternative, $0 to $3 at altLINE against a market range of $5 to $30.

The monthly minimum hurts a seasonal business, because it charges you in the months you did not need the facility. Read whether the contract makes it a floor on your discount fees or a separate charge on top, which differ by the entire minimum in every month you are above it. This calculator treats it as a floor by default, which is how a factoring agreement normally words it, and lets you switch.

The early termination fee is priced on the facility limit or on a volume shortfall, not on what you drew, and no reliable published range exists. Liquid Capital's case files carry a company charged a 10 percent facility termination fee, $100,000 to leave a $1,000,000 line, and a manufacturer billed $160,000 on a minimum volume shortfall. Pair that with the notice window, because a written cancellation requirement of 30 to 90 days that you miss silently renews the whole term. Ask how it would be computed if you left after three months.

Then there is the fee your customer triggers rather than you. Every assigned invoice is redirected to the factor's lockbox, and long standing customers keep paying the way they always have. A payment that lands with you and is not remitted inside the contract window, usually two to five business days, triggers a misdirected payment fee, and depositing the check is a breach rather than a fee. Application and due diligence round it out: altLINE publishes $150 to $500 for filing, against a market origination of 0 to 3 percent of the credit line plus $35 to $100 per debtor credit check.

Under recourse factoring, the default and the cheaper of the two, the credit risk stays with you. If your customer never pays, you substitute another good invoice or hand the money back. altLINE puts it plainly in its own example: if payment is never received, the client will ultimately be required to pay altLINE back for the total amount of the cash advance provided. Recourse factoring is a cash flow product, not a bad debt product: it moves money forward in time, it does not move risk.

Non recourse costs more and buys much less than merchants think. altLINE says the only time a non recourse contract protects you from a chargeback is if the debtor files bankruptcy, and that there is no warranty you are hedged against products or services disputed by the client. So the two most common reasons a US B2B invoice goes unpaid, a dispute about the work and a customer who stalls, sit outside the cover you paid extra for. Short pays, retainage, offsets and missing paperwork stay your problem in both structures.

New York wrote the useful question into its form. 23 NYCRR 600.12 requires a factoring disclosure table carrying the funding provided, the estimated APR, the finance charge, the estimated term and a repurchase row. If you are outside a disclosure state and your term sheet has no repurchase row, ask for one in writing: what triggers a repurchase, what it costs, and how long you have to cure. That answer is the product you are actually buying.

The honest case is narrow. Factoring is fast, it underwrites your customer rather than your balance sheet, and it scales with sales instead of a fixed limit, so a young B2B business with strong customers and no credit history can get funded when a bank will not look at it. If a 5 percent discount on a $50,000 invoice wins a job carrying $20,000 of margin, the annualized rate is beside the point. The rate starts to matter when factoring becomes permanent working capital rather than a bridge, because then you pay for the same money over and over.

Compare it in units that survive the comparison. The SBA states the mismatch: asset-based loans are priced with an annual percentage rate, while factoring lines are priced by discounting the full value of the invoice by a percentage. Those are not comparable until one is converted, which is the whole job of this Invoice Factoring Rate to APR Calculator. Use the facility mode too: a facility is not an invoice. Factoring $150,000 of face value a month at an 85 percent advance on 45 day payment leaves an average balance of $188,630 outstanding, not the $1,800,000 that passed through, and dividing the annual bill by that balance gives 49.62 percent a year on the defaults.

Price the cheaper alternatives first. Offering a 2 percent discount for payment in 10 days is frequently cheaper than factoring at 5 percent for 45. Getting paid by card or ACH at issue removes the receivable entirely. And go in informed: the Federal Reserve Banks' 2026 Report on Employer Firms, published 3 March 2026, found 60 percent of firms that borrowed from online lenders reported actual borrowing costs higher than expected. Annualizing the quote first is how you avoid joining them.