Invoice Financing Calculator – Estimate Your Payments
If you need to increase your cash flow, invoice financing — sometimes called invoice factoring or invoice discounting (though the terms are not interchangeable) — may be the solution.
As a small business owner who works primarily on a credit basis with your customers, you’re likely no stranger to lean times. Though you may have finalized a lucrative project, your bank account will not reflect the fruits of your labor until your customer pays. And depending upon your terms, this could take as long as 90 days. While you wait, you still have to meet payroll, pay suppliers and cover other operational expenses.
With invoice financing, you can get instant access to the cash you’re owed and bridge temporary cash flow gaps or act on a time-sensitive business opportunity.
How much will invoice financing cost you, though? To find out, plug the numbers into our invoice discounting cost calculator.
How Can Invoice Financing Help?
- Select invoices you wish to finance.
- Lender will issue you a percentage of the invoices, known as an advance. The remaining balance is held in reserve.
- Lender charges a fee known as a factor (or discount rate), often weekly, until the invoices are paid in full.
- With invoice factoring, once the invoices are paid, the lender issues you the reserved balance, minus fees.
Learn more about invoice and accounts receivable financing.
Invoice Financing Calculator Terms to Know
Before you run the numbers in the accounts receivables financing calculator, let’s review some terms that you’ll come across and should understand.
The advance rate refers to the percentage of the invoice value a lender will pay your business at the time your receivables are financed. The amount of the advance depends on many factors, including your industry, the size of your transaction and other risk parameters. But in general, you can expect to receive 70%-90% of your accounts receivable face value. Fast Capital 360 uses a default advance rate of 80% in our invoice factoring calculator.
The reserve is the amount of the invoice value not advanced to the business. The reserve is returned to the business when the invoice is paid.
A factor fee structure involves the lender charging a small percentage of the invoice (typically 1%-3%) until the balance is paid. That said, the longer an invoice remains unpaid, the more factor fees you’ll incur. Factor fees are deducted from the reserve.
You will need to know your factor rate in order to estimate your payments using our online invoice financing calculator.
Once your customer pays the invoice in full, your lender rebates you a portion of the advance that has been kept in reserves, less any fees.
Estimate Your Cost With the Invoice Financing Calculator
Now that we’ve provided background for the invoice financing calculator, you’re ready to estimate your costs.
Enter the total value of the invoice you plan to finance.
Enter the estimated invoice factor fee into the calculator.
Select the net terms of the given invoice in weeks. If you’re working with a late-paying customer that you know particularly well, adjust the term accordingly.
Calculate your payments. We encourage you to experiment with different terms. This way, you fully understand what the potential cost of funding may be — whether your customer pays their invoice in 30 or 120 days.
Invoice Financing Calculator Example
Let’s review an example of how we’d use an invoice financing calculator to see how these components work together in an invoice financing transaction.
Nick’s Roofing Company factors a $20,000 invoice. The lender advances Nick 80% of the invoice value ($16,000) and charges a 1% factor fee each week until the invoice is paid in full.
It takes Nick’s customer 8 weeks to pay the invoice. Therefore, Nick accrues $1,600 in total fees. That amount is deducted from the $4,000 reserve and Nick receives a $2,400 rebate.
How Lenders Determine Your Invoice Advance and Factor Rates
Now that we’ve covered the basics of invoice financing and how a receivables financing calculator works, let’s examine how a lender determines the advance and factor rates for small business owners.
Unlike other short-term funding options, the creditworthiness of your business is less of a deciding factor. What’s essential in invoice financing and receivables factoring is the creditworthiness of your customers. As a result, you can expect invoice financing companies to perform a thorough examination of your customer’s payment history with your business, a business credit check and reputation analysis.
While there are fewer minimum requirements, the health of your business is still relevant and will influence your offered advance and factoring rates.
For example, a lender will consider:
- Your company’s average collection period (days outstanding): As a general rule, the less time it takes to collect on customer invoices, the lower the risk of default and the lower the factor fee and higher the advance rate your business may qualify for.
- The diversity of your customer portfolio: The more customers you have and the more evenly your sales are distributed among them, the lower the overall risk. Companies with a diverse portfolio of clients tend to get better factoring and advance rates than those with a more concentrated portfolio of just a few clients.
- Your company’s sales volume: The number of accounts receivable you plan to finance every week will affect your factor and advance rates. Typically, the more invoices you plan to finance, the lower your factor rate and the higher your advance rate.
Beyond the Calculations: Other Invoice Financing Cost Considerations
Like any financing product, terms vary. So it’s important to pay close attention to the fine print when you’re getting ready to use the invoice financing calculator online to estimate your payments. Be sure to account for additional lender fees.
Common financing expenses not included in an invoice finance charge calculator may include:
- Application fees
- Origination fees
- Servicing fees
- ACH and bank wire fees
Steps to Take After Using the Invoice Calculator
Estimating the total cost of factoring invoices can be challenging, whether you’re new to invoice financing or not. But by plugging your invoice amount, advance rate and term into our invoice payment calculator, you’ll have a clearer understanding of what your final cost of financing invoices may be.
If you have questions about whether invoice financing is right for you or need help understanding your invoice finance calculator results, talk to a Fast Capital 360 Business Advisor. They will be able to help you decipher and navigate the terms and will pair you with reputable lenders in the industry.