Invoice financing: read the yearly cost, not the monthly fee

The answer first. If your customers pay in 30, 60 or 90 days and payroll is due Friday, invoice financing can bridge the gap. It can also cost far more than it looks, because the fee is usually quoted per month and the days are counted in ways most owners never ask about.

Start with what goes wrong

• ◆Comparing a monthly fee with a yearly loan rate. They are not the same unit.
• ◆Not asking how the days are counted.
• ◆Financing disputed or unfinished work. A lender wants invoices for finished, undisputed jobs.
• ◆Signing up every invoice when you only need to finance one.
• ◆Staying on factoring after you have outgrown it.

Two numbers to ask for

(Hypothetical, round numbers.) Suppose a program charges 2% for each 30 days on a $100,000 invoice. If the customer pays inside the first 30 days, the fee is $2,000. Now suppose the program counts in 30-day blocks, and the customer pays on day 31. The fee can double to $4,000. Same invoice, same customer, one extra day.

A monthly fee also hides the yearly picture. Multiply what you would pay if you used the program all year, and compare that with other ways to borrow. A small monthly number can be a large yearly one.

Who the lender is really underwriting

With invoices, the lender is counting on your customer to pay. So it looks at who owes you and how old the invoices are.

• ◆Customers that are businesses or government agencies, not consumers.
• ◆A history of paying on time, even if slowly.
• ◆A clean aging report, with little or nothing long past due.
• ◆Finished work with a sign-off behind each invoice.
• ◆No other lender already holding those invoices as security.

Factoring and an invoice line are different

Factoring advances cash against one invoice or a group, and you get the rest, minus the fee, when the customer pays. An invoice line is a credit line sized to your unpaid invoices: you draw what you need and pay interest only on what you drew. When your customers pay steadily and your books are clean, a line can cost less. Factoring is a bridge, not a place to live.

What the Fed's survey says about asking

In the Federal Reserve Banks' 2025 Small Business Credit Survey, 52% of small employer firms that applied for financing were approved for the full amount they asked for, and 38% of firms applied at all. The Fed notes the survey is not a random sample, so treat it as a guide. The point for you: ask once, with a clean request.

1. 1

   Run your aging report

   Sort by customer and by age.

2. 2

   Collect or settle the old ones

   Do it before you apply.

3. 3

   Ask how the days are counted

   Get it in writing, with an example.

4. 4

   Compare the yearly cost

   Against a line and against other options.

The plain version

Know what you get now, what you pay, and what it costs over a year. Ask how the days are counted before you sign. We are a broker, not a lender, and the lender decides.