Trucking Terms Guide

Tool

Factoring cost calculator

Enter your invoice amount, the factoring company's rate, and the advance percentage to see your advance payment, factoring fee, reserve holdback, and the effective annual cost of factoring your receivables.

Your numbers

Invoice details

$
days

Factoring terms

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%

Common advance rates: 90–97% upfront. The remainder (reserve) is paid after the broker pays the factor, minus the fee.

Volume (for annual estimate)

Cost breakdown

Advance payment (upfront)
$2,375
Factoring fee
$75.00
Reserve holdback
$125
Reserve released after payment
$50.00
Net received (advance + reserve)
$2,425
Fee as % of net received
3.09%
Annualized cost (APR equivalent)
37.6%
Weekly factoring cost (at stated volume)
$375
Monthly factoring cost
$1,624
Annual factoring cost
$19,500

How the calculation works

The factoring fee is calculated as a percentage of the gross invoice amount. The advance is the percentage of the invoice paid immediately when the factor accepts it. The reserve holdback is the difference between the invoice and the advance — the factor holds it until the broker or shipper pays, then releases it minus the fee.

Advance = invoice × (advance rate ÷ 100)

Fee = invoice × (factoring rate ÷ 100)

Reserve released = invoice − advance − fee

The APR equivalent converts the factoring fee into an annualized rate for comparison to other financing. It divides the fee by the net received (invoice minus fee), then scales to a yearly rate based on the days you would otherwise wait for payment: APR ≈ (fee ÷ net received) × (365 ÷ payment days). This makes the cost comparable to a line of credit or bank loan, where cost is typically quoted as an annual rate.

What this calculator does not account for

Some factoring companies charge additional fees: an origination fee to set up the account, a monthly minimum fee if volume falls below a threshold, a wire fee for same-day payment, or a fuel advance fee. These add to the effective cost and should be included in your analysis. Factoring contracts also vary significantly: some are recourse (you owe the fee regardless of whether the broker pays), others are non-recourse (the factor absorbs the credit risk for an additional cost). The total cost of factoring includes the fee structure, any additional charges, and the terms of the contract.

Frequently asked questions

What does a freight factoring company charge?
Typically 2–5% of gross invoice as a fee. On a $2,500 invoice at 3%, the fee is $75. The carrier receives a 90–97% advance upfront, with the remainder (reserve) released when the broker pays the factor, minus the fee. Additional charges (wire fees, monthly minimums) may increase effective cost.
What is the difference between advance rate and factoring fee?
The advance rate is the percentage paid immediately (e.g., 95% = $1,900 on a $2,000 invoice). The factoring fee is a separate charge for the service (e.g., 3% = $60). The carrier eventually receives the advance plus the reserve release minus the fee — not the full invoice amount.
What is reserve holdback?
The difference between the invoice total and the advance amount. The factor holds it until the broker pays in full, then releases it to the carrier minus the factoring fee. Reserve release timing (15–45 days typically) affects total cash flow, not just the advance.
When does factoring make financial sense?
When the cost (2–5% per invoice) is less burdensome than the cash flow gap of waiting 30+ days for broker payment. If fuel, insurance, and truck payments require faster cash access than 30-day terms allow, factoring cost may be justified. With sufficient cash reserves, direct broker payment saves the fee.