Skip to main content

Methodology

Invoice Financing Comparison methodology

Compare user-entered invoice-financing fees with the funding cost of waiting for normal collection.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Cash Advanced
cashAdvanced = invoice amount × advance rate

Where

invoiceAmount
Invoice amount (currency units/invoice face value on the selected tax basis)Source: Business record
advanceRate
Advance rate (decimal fraction of invoice face value advanced immediately (1 = 100%))Source: Business record
cashAdvanced
Cash Advanced (currency units, ex tax)Source: Calculated output
Retained Balance
retainedBalance = invoice amount − cash advanced

Where

invoiceAmount
Invoice amount (currency units/invoice face value on the selected tax basis)Source: Business record
cashAdvanced
Cash Advanced (currency units, ex tax)Source: Calculated output
retainedBalance
Retained Balance (currency units, ex tax)Source: Calculated output
Financing Cost
financingCost = invoice amount × financing fee rate + fixed fee

Where

invoiceAmount
Invoice amount (currency units/invoice face value on the selected tax basis)Source: Business record
financingFeeRate
Financing percentage fee (decimal financing fee fraction of invoice face value (1 = 100%))Source: Business record
fixedFee
Fixed financing fee (currency units/financing transaction)Source: Business record
financingCost
Financing Cost (currency units, ex tax)Source: Calculated output
Net Advance
netAdvance = cash advanced − financing cost

Where

cashAdvanced
Cash Advanced (currency units, ex tax)Source: Calculated output
financingCost
Financing Cost (currency units, ex tax)Source: Calculated output
netAdvance
Net Advance (currency units, ex tax)Source: Calculated output
Funding Cost Of Waiting
fundingCostOfWaiting = expected collection × annual funding rate × days ÷ day-count basis

Where

annualFundingRate
Annual funding rate (decimal annual funding-cost rate applied to the waiting option (1 = 100%))Source: Business record
dayCountBasis
Day-count basis (whole days/annual funding-cost day-count basis)Source: Business record
fundingCostOfWaiting
Funding Cost Of Waiting (currency units, ex tax)Source: Calculated output
totalWaitingCost
Total Waiting Cost (currency units, ex tax)Source: Calculated output
Opportunity Cost Of Waiting
opportunityCostOfWaiting = explicit opportunity contribution while waiting

Where

opportunityContributionWhileWaiting
Opportunity contribution while waiting (currency units of contribution unavailable over the normal-collection wait)Source: Business record
opportunityCostOfWaiting
Opportunity Cost Of Waiting (currency units, ex tax)Source: Calculated output
totalWaitingCost
Total Waiting Cost (currency units, ex tax)Source: Calculated output
Total Waiting Cost
totalWaitingCost = funding cost + opportunity contribution

Where

fundingCostOfWaiting
Funding Cost Of Waiting (currency units, ex tax)Source: Calculated output
opportunityCostOfWaiting
Opportunity Cost Of Waiting (currency units, ex tax)Source: Calculated output
totalWaitingCost
Total Waiting Cost (currency units, ex tax)Source: Calculated output
Cost Difference
costDifference = financing cost − total waiting cost

Where

financingCost
Financing Cost (currency units, ex tax)Source: Calculated output
totalWaitingCost
Total Waiting Cost (currency units, ex tax)Source: Calculated output
costDifference
Cost Difference (currency units, ex tax)Source: Calculated output
Break Even Financing Fee Rate
breakEvenFinancingFeeRate = (total waiting cost − fixed fee) ÷ invoice amount

Where

invoiceAmount
Invoice amount (currency units/invoice face value on the selected tax basis)Source: Business record
financingFeeRate
Financing percentage fee (decimal financing fee fraction of invoice face value (1 = 100%))Source: Business record
fixedFee
Fixed financing fee (currency units/financing transaction)Source: Business record
financingCost
Financing Cost (currency units, ex tax)Source: Calculated output
totalWaitingCost
Total Waiting Cost (currency units, ex tax)Source: Calculated output
breakEvenFinancingFeeRate
Break Even Financing Fee Rate (decimal rate)Source: Calculated output
Break Even Financing Fee Rate State
breakEvenFinancingFeeRateState = reachable only from 0% to 100%; otherwise unreachable or above the supported range

Where

financingFeeRate
Financing percentage fee (decimal financing fee fraction of invoice face value (1 = 100%))Source: Business record
breakEvenFinancingFeeRate
Break Even Financing Fee Rate (decimal rate)Source: Calculated output
breakEvenFinancingFeeRateState
Break Even Financing Fee Rate State (decision state)Source: Calculated output
Lower Cost Option
lowerCostOption = compare raw financing and waiting costs

Where

financingCost
Financing Cost (currency units, ex tax)Source: Calculated output
totalWaitingCost
Total Waiting Cost (currency units, ex tax)Source: Calculated output
lowerCostOption
Lower Cost Option (decision state)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

The worked rows below come directly from the registered engine and visible default fixture.

Calculation and outputs

Example

The worked rows below come directly from the registered engine and visible default fixture.

Cash Advanced
8,000 currency units
Retained Balance
2,000 currency units
Financing Cost
350 currency units
Net Advance
7,650 currency units
Funding Cost Of Waiting
98.63 currency units
Opportunity Cost Of Waiting
200 currency units
Total Waiting Cost
298.63 currency units
Cost Difference
51.37 currency units
Break Even Financing Fee Rate
2.5%
Break Even Financing Fee Rate State
reachable
Lower Cost Option
wait

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

The comparison isolates entered fees and funding cost; it does not assess recourse or eligibility.

3. Validation and boundary checks

  • All inputs must be finite and within the visible boundaries.
  • Cash, debt and timing values use one consistent planning period.
  • Payment counts and frequencies must be positive whole numbers.

4. Assumptions and source classification

  • All balances, rates, timing and coverage thresholds are user-supplied records or explicit assumptions.
  • No lender covenant, market rate, policy threshold or future cash flow is inferred.

This comparison calculator has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The model excludes lender fees, taxes, covenant definitions and lender-specific credit assessments.
  • It does not replace accounting, tax, legal or financial advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this comparison calculator. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.

Related reading

Guides to interpret the decision and its assumptions.

Return to the comparison calculator