How invoice factoring works
An invoice factoring calculator shows the amount of working capital an organization could expedite to more easily finance payroll or meet operating expenses and grow. Businesses that want to expedite payment of accounts receivable invoices can factor them (or sell them) to a receivables factoring company for a small fee (as low as 1-2% of the invoice amount).
Invoices factored are typically funded on the same day, often up to 98% of the face value of the invoice, with any remainder placed in ‘reserve.’ For instance, let’s say that you are billing a customer in the amount of $22,000 but you want to access the funds without waiting weeks – or months – for your customer to pay.
Assuming a factoring fee of 2%, and an advance rate of 98%, here’s how it would work:
Day 1 – |
Generate $22,000 client invoice and factor it |
– Same Day |
Your company receives 98% advance of $21,560 by wire transfer or ACH |
|
The factoring company earns a 2% factoring fee, which is realized when the customer pays the invoice |