Invoice Factoring vs Line of Credit Comparison
Factoring advertises 'just 3% per invoice' — but on a 30-day invoice that's 36%+ APR. Compare the true annualized cost of invoice factoring vs a business line of credit on the same working-capital need.
| Invoice amount | — |
| Factoring fee | — |
| Advanced cash (upfront) | — |
| Days held by factor | — |
| Factoring annualized APR | — |
| Same money via LOC for ' + days + ' days | — |
| LOC vs factoring saving | — |
Invoice factoring trades a percentage of each invoice for immediate cash. A 'low' 3% factoring fee on a 30-day invoice is actually 36% APR — because the fee covers only the 30 days the invoice is outstanding. Compare against a business line of credit's typical 9–13% APR; factoring is more expensive but easier to qualify for.
True Cost of Factoring
Factoring fee: 1–5% per invoice. On a 30-day invoice, that's 12–60% APR equivalent. On a 60-day invoice, 6–30% APR. Headline 'per invoice' rates hide the annualized cost. Always compute APR — same way you would for a credit card or loan.
Line of Credit Math
Business LOC at 9–13% APR: cost = balance × APR × days/365. On $21K advance for 30 days at 11.5%: $198 cost. Compared to $875 factoring fee on the same invoice at 3.5%. LOC is 4× cheaper — when you can qualify.
When Factoring Makes Sense
You can't qualify for traditional credit (new business, weak personal credit, sector lender doesn't cover). You need same-day cash and can't wait for LOC approval. The lender requires lien on receivables anyway (factoring is liens-cleaner). Your gross margin is high enough that 30%+ APR is still profitable.
Last updated May 2026. Sources: SBA Working Capital Guide, IFA International Factoring.