1. What is Factoring?

Factoring is a financial transaction where a business sells its accounts receivable (invoices) to a third party (called a factor) at a discount. It provides immediate cash flow to businesses rather than waiting for customer payments.

2. How Does the Calculator Work?

The calculator uses the factoring formula:

Where:

• \( \text{Invoice} \) — Total invoice amount ($)
• \( \text{Advance Rate} \) — Percentage of invoice advanced by factor (%)
• \( \text{Fee} \) — Factoring fee charged by the factor ($)

Explanation: The equation calculates the net amount a business receives after the factor advances a percentage of the invoice and deducts their fee.

3. Importance of Factoring Calculation

Details: Accurate factoring calculations help businesses understand their immediate cash flow, evaluate the cost of factoring services, and make informed financial decisions about working capital management.

4. Using the Calculator

Tips: Enter the invoice amount in dollars, advance rate as a percentage, and the factoring fee in dollars. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical advance rate in factoring?
A: Advance rates typically range from 70% to 90% of the invoice value, depending on the industry and the factor's risk assessment.

Q2: How are factoring fees structured?
A: Factoring fees can be a flat fee per invoice or a percentage of the invoice amount, typically ranging from 1% to 5% of the invoice value.

Q3: What's the difference between recourse and non-recourse factoring?
A: In recourse factoring, the business must buy back unpaid invoices. In non-recourse factoring, the factor assumes the credit risk of non-payment.

Q4: When is factoring a good option for businesses?
A: Factoring is beneficial for businesses with slow-paying customers, seasonal cash flow needs, or those that need immediate working capital for growth opportunities.

Q5: Are there industries where factoring is particularly common?
A: Factoring is common in industries with long payment cycles such as manufacturing, staffing, transportation, and wholesale distribution.