Invoice Financing Calculator

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How to Use the Invoice Financing Calculator.

To recap invoice financing, you can receive 80-85% of an outstanding invoice in advance from an invoice financing company. Upon payment, you’ll receive the remaining amount minus a factoring fee, typically 0.5-4% per month. Credit scores and profitability matter less since the invoice serves as collateral. While not inexpensive, it’s generally more favorable than merchant cash advances.

How the Math Works.

The math is actually quite simple since there’s only one advance and one payment.

  • First, let’s calculate the interest charge you end up paying. Interest = (Invoice Amount) – (Total Amount Paid Back to You)
  • Next, let’s calculate the monthly rate. We assume there’re 30 days in a month. (Monthly Interest Rate) = ((Interest + (Advance Amount))/(Advance Amount))^(30/(Invoice Due in Days)) – 1
  • *APR = (Monthly Interest Rate) 12**

Assuming monthly compounding, other calculators might use daily compounding, resulting in a slightly higher APR. We opt for monthly compounding to facilitate direct comparisons with term loans, bank credit lines, and credit cards.

In businesses with delayed client payments, consider delaying vendor payments using trade lines from suppliers like Home Depot or Staples. Paying on a net 30/60/90 basis can help avoid borrowing at high APRs.

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