Graduate From Factoring
Would switching from factoring to a line of credit actually save money?
Why this comes up
Agencies often start on factoring because it's easier to qualify for, and stay on it well past the point where a line of credit would be cheaper, simply because the switch itself takes effort. This engine checks that specifically: given your actual funded volume and the real rates each option costs, does switching clear the one-time cost of doing it.
How we calculated this
Annual Cost Savings Rate = Current Factoring Cost Rate - Alternative LOC Cost Rate Expected Annual Savings = Annual Funded Volume x Annual Cost Savings Rate - One-Time Switching Cost Payback Period = One-Time Switching Cost / (Annual Funded Volume x Annual Cost Savings Rate)
Worked example: $3,000,000 annual funded volume, 24% current effective factoring cost rate, 9% alternative LOC cost rate, $15,000 one-time switching cost.
Annual Cost Savings Rate = 0.24 - 0.09 = 15% Expected Annual Savings = 3,000,000 x 0.15 - 15,000 = $435,000 Payback Period = 15,000 / 450,000 = 0.033 years (about 12 days) Worth Switching = Yes
What this means
- At real staffing funding volumes, even a modest rate-gap between factoring and a line of credit produces large annual dollar savings, since it's applied against your full annual funded volume, not a single invoice.
- The one-time switching cost rarely changes the answer once volume is meaningful, in the example it pays back in about 12 days, but it's still worth entering accurately rather than assuming it's negligible.
- This is a decision worth revisiting periodically, not just once; your effective factoring rate and the LOC rates available to you both change over time as your agency's financials and the market shift.
Common mistakes
- Never re-running this after the first time you checked it, missing a gap that's opened up as your agency's financials improved and better LOC terms became available.
- Using a nominal factoring or LOC rate instead of the actual effective cost rate, which should include all fees, not just the headline percentage.
- Ignoring the switching cost entirely rather than entering a realistic figure, even though it rarely changes the outcome at meaningful volume.
Frequently asked questions
Where do I get my "effective" cost rate for each option?
Use Factoring Cost's simple annualized equivalent for your current factoring cost, and your actual line-of-credit rate including any origination or facility fees, annualized the same way, for the alternative.
What if the savings rate is negative?
That means factoring is currently cheaper than the alternative at your rates; switching would cost money, not save it, and the engine will reflect that in a negative expected annual savings figure.
Does this account for qualification risk?
No, it assumes you'd actually qualify for the alternative LOC terms entered. Confirm real terms with a lender before treating this as a final answer.
Limitations
Assumes both effective cost rates stay stable at your entered volume; a much larger funded volume than modeled here may qualify for different LOC pricing tiers not reflected in a single flat rate.
Next decision
Learn more
Factoring vs Line of Credit for Staffing Agencies — what each option actually costs, and when the pricier one is still the right call.