How to Calculate Invoice Factoring Cost
The true annualised cost of factoring, which the headline discount rate hides.
How this number is built
Calculating it yourself
Step 1
Get the discount rate, the period it is charged over, and every additional fee in writing.
Step 2
Count how many discount periods your customer's actual payment behaviour triggers.
Step 3
Convert the cost to an annualised rate before comparing it to any loan.
Step 4
Check whether the agreement is recourse — if so, you still carry the bad-debt risk.
Step 5
Read the minimum-volume and termination clauses; they are where factoring contracts bite.
What people ask next
Is factoring a loan?
No. You are selling the receivable, so it does not usually appear as debt. The cost, however, behaves like interest and should be compared as such.
Why is non-recourse more expensive?
Because the factor absorbs the risk of your customer not paying. That risk is priced into a higher discount rate.
Searches this page answers
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