Working Capital & Commercial Trade Finance
Invoice Factoring Advance, Reserve & True APR Formula
Calculate Funded Receivable Factoring Cash Advance, Net Reserve Holdback Rebate, True Effective Annualized Cost (APR on Funded Cash), and Naive Face-Value APR Understatement.
Annualize invoice factoring fees against funded cash advance—never gross invoice face!
When a receivable factor buys a $100,000 commercial invoice at an 80% Advance Rate and charges a 2.40% flat factoring discount over 73 collection days, borrowers routinely divide the $2,400 fee by the $100,000 face value (2.40% * 365/73 = 12.00% APR)! That calculation ignores the non-interest-bearing 20% Reserve Holdback ($20,000): the company ONLY receives $80,000 of usable Day-0 cash, and receives the remaining $20,000 - $2,400 = $17,600 Net Reserve Rebate only AFTER the customer pays on Day 73! Consequently, the true annualized cost of funds is True_APR = (Total_Factor_Fee / Funded_Advance) * (365 / Collection_Days)—which equals True_APR = Naive_Face_APR / Advance_Rate!
Verify on Invoice_Face_Value = $100,000 (B2), Advance_Rate = 0.80 (80.0%, B3 -> Day-0 Funded Cash Advance = $80,000.00 in E2), Flat_Factoring_Fee_Pct = 0.024 (2.40%, B4 -> $2,400 fee -> Day-73 Net Reserve Rebate = $20,000 - $2,400 = $17,600.00 in E3), and Collection_Days = 73 days (365 / 73 = 5.0 turns/yr, B5): True Effective APR on Usable Cash is (2,400 / 80,000) * 5 = 0.1500 (15.00% in E4), whereas Naive Face-Value APR reports 0.1200 (12.00% in E5—a 300-bps understatement)!
| Receivable Factoring Metric ($100k Invoice, 80% Adv, 2.40% Fee, 73 Days) | Formula | Verified Output |
|---|---|---|
| Day-0 Funded Cash Advance ($) | Invoice_Face * Advance_Rate | $80,000.00 ($90k @ 90% Adv) |
| Collection Net Reserve Rebate ($) | Face * (1 - Adv_Rate - Fee_Pct) | $17,600.00 ($2,400 Factor Fee) |
| True Effective Cash APR (365d) | (Fee_USD / Funded_Advance) * (365 / Days) | 0.1500 (15.00%; 13.33% @ 90% Adv) |
| Naive Face-Value APR | Fee_Pct * (365 / Collection_Days) | 0.1200 (Understates Cost by 300 bps) |
True Usable-Cash Factoring Effective APR Formula
Validate Invoice_Face > 0, 0 < Advance_Rate <= 1, 0 < Fee_Pct < (1 - Advance_Rate) (so Reserve Holdback covers the factoring fee!), and Collection_Days >= 1!
=LET(fc_v, B2, ad_r, B3, fe_p, B4, cl_d, B5, IF(OR(fc_v <= 0, ad_r <= 0, ad_r > 1, fe_p <= 0, fe_p > 1 - ad_r, cl_d < 1), "Invalid Factoring Terms", LET(ad_c, fc_v * ad_r, fe_d, fc_v * fe_p, ROUND((fe_d / ad_c) * (365 / cl_d), 4))))Advance-Rate & Turn-Velocity Sensitivity Check
Negotiate a 90% Advance Rate (B3 = 0.90): True APR drops from 15.00% to 13.33%! Stretch customer payment to 146 days (B5 = 146) under a flat non-tiered fee: True APR halves to 7.50%!
=IF(ISTEXT(E4), E4, ROUND(B4 * (365 / B5), 4))Try the example
Use the original values or change them to test your understanding.