Funding Fee Margin Impact
How much does my funding/factoring fee cut into margin?
Why this comes up
If you factor invoices or use a funding facility to cover payroll before a client pays, that financing has a real cost, and it's easy to track it as a general line item without connecting it back to any specific account's actual margin. This engine puts the fee back where it belongs: subtracted from the contribution the account is actually generating.
How we calculated this
Flat mode: Funding Cost = Invoice Amount x Flat Fee Rate Stepped mode: Funding Cost = Invoice Amount x the fee tier applicable at the actual days outstanding Contribution After Funding = Contribution Before Funding - Funding Cost Margin After Funding = Contribution After Funding / Billings
Worked example, flat mode: $100,000 invoice, 2% flat fee, $15,000 contribution before funding, $100,000 billings.
Funding Cost = 100,000 x 0.02 = $2,000 Contribution After Funding = 15,000 - 2,000 = $13,000 Margin After Funding = 13,000 / 100,000 = 13.0%
What this means
- Stepped fee schedules charge more the longer an invoice stays outstanding; a slow-paying client's true funding cost can be materially higher than a flat-rate estimate suggests.
- This cost belongs in the same profitability picture as burden and program fees, not treated as a separate financing-only line that doesn't touch any one account's numbers.
- A funding cost that's acceptable on a healthy-margin account can make a thin-margin account genuinely unprofitable; check both together, not in isolation.
Common mistakes
- Using a flat-rate assumption for an agreement that's actually stepped by days outstanding, understating true funding cost on slower-paying accounts.
- Tracking funding cost only at the agency level, never attributing it back to the specific accounts actually driving it.
- Comparing funding cost against interest rates as if it were an APR, when a factoring fee and an annualized interest rate aren't measuring the same thing unless explicitly converted.
Frequently asked questions
When should I use stepped mode instead of flat?
Use stepped mode whenever your actual factoring or funding agreement charges an increasing rate the longer an invoice is outstanding, which is common. Flat mode understates cost on any invoice that runs past the first pricing tier.
How is this different from Factoring Cost?
Factoring Cost computes the cost of factoring one specific invoice in isolation. This engine ties that cost directly to an account's contribution and resulting margin.
Should I compare this against a line of credit?
Yes, if you have the option; see Factoring vs Line of Credit to compare the two funding sources on the same basis.
Limitations
Stepped mode requires accurate tier thresholds from your actual agreement; an incomplete or misordered schedule will misstate the applicable fee.
Next decision
Learn more
How Factoring Changes Staffing Agency Profitability — why this fee is a direct cost against a specific account, not a financing-line abstraction.