Factoring
A 3% fee is 41% a year
Factoring is quoted as a percentage of the invoice, which sounds like a discount and behaves like interest. Three per cent to be paid thirty days early is not three per cent a year. It is three per cent for one month, on the money you actually received.
The advance rate is the part that gets forgotten. At a 90% advance you pay the fee on the whole invoice and receive nine tenths of it now, so the true rate on the cash in your hand is higher than the headline again.
What that fee actually costs, annualised
40.6%
A 3% fee to be paid 30 days early is not 3% a year.
Fee on this load
$72
Cash you get now
$2,160
A year of it
$12,600
The advance rate is the part that gets forgotten: you pay the fee on the whole invoice while receiving only 90% of it now, so the true rate on the cash in your hand is higher than the headline again. Factoring is not automatically a bad deal. It is a very expensive one, and it should be compared against a line of credit and against simply waiting, rather than treated as the only option because it is the one being marketed to you.
It is not automatically a bad deal
A new authority with no credit history and no cash cushion often cannot wait forty-five days to be paid, and a load taken today at 40% annualised beats a truck sitting still. The mistake is not using factoring. The mistake is using it forever without ever comparing it against a line of credit, a quick-pay discount, or simply waiting.
What to read in the contract
Recourse or non-recourse, and what triggers recourse. Minimum monthly volume, and the fee if you miss it. The notice period to leave, which is frequently far longer than people expect. And whether the reserve is genuinely released on payment or held against future disputes.
Put it in the cost per mile
Factoring every load at 3% is 3% off the top of your revenue, which on a $2.20 a mile operation is about seven cents a mile that never reaches you. That belongs in the model rather than being thought of as a banking arrangement.
If you decide it is worth it
Rates are negotiable and they move with volume, so the number you were first quoted is rarely the number available to you. Tell us what you bill and what you pay now and we will put it in front of factors who want accounts your size.
If the calculator above talked you out of factoring entirely, that is the calculator working and you should ignore this form.
We may be paid a referral fee if you sign with a factor we introduce. It does not change your rate and it does not change the arithmetic above. How this site makes money.