- Factoring fee
- $60
- Same-day advance
- $1,900
- Reserve released later
- $40
- Total you receive
- $1,940
- Fee as an annualised rate
- 31.3%
How it works
The fee is the invoice amount times the fee percentage. The advance is the invoice times the advance rate, paid the next day; the rest, minus the fee, is released as reserve when the debtor pays.
The annualised rate expresses the fee as a yearly cost for the days of float it buys: fee percent divided by days sped up, times 365. It lets you compare factoring against quick pay or a line of credit on the same basis.
Assumptions
- One invoice, one fee. Some factors add monthly minimums, wire fees, or higher rates for slow-paying debtors — those are not modelled here.
- The debtor pays on the schedule you assume; a longer actual wait lowers the effective annualised rate, a shorter one raises it.
- Recourse vs. non-recourse is not modelled — non-recourse typically carries a higher fee for a narrower protection.
Worked example
A $2,000 invoice at a 3% fee, 95% advance, speeding payment up by 35 days: fee $60, same-day advance $1,900, reserve released later $40, total received $1,940. The fee annualises to about 31% — useful for comparing against a 2% quick-pay or a credit line.
FAQ
Is a 31% annualised rate bad?
It is a number to compare, not a verdict. If the alternative is stalling the truck for lack of cash, the fee can be worth it. If a broker offers 2% quick pay or you have a cheaper credit line, those may beat it.
Does this cover the whole factoring relationship?
No — it prices one invoice. Monthly minimums, whether you must factor your whole book, and how disputes are handled all matter and are not in the formula.
Questions: Should I use factoring or quick pay?
Terms: Freight Factoring, Quick Pay, Recourse vs. Non-Recourse Factoring, Days Sales Outstanding (DSO)
In Trailflow: accounting and settlements.