Quick answer: Invoice factoring is priced with a factor fee (often about 1–5% per 30 days the invoice is outstanding) plus an advance rate (typically 80–95% up front, the rest released as a reserve when your customer pays). Your rate depends on volume, your customers’ credit, how fast they pay, and recourse vs. non-recourse terms.
Invoice Factoring
Factoring doesn’t use an interest rate—it uses a factor fee and an advance rate, which makes it easy to under- or over-estimate the true cost. This page breaks down exactly how factoring is priced, what moves your rate up or down, the fees to watch for, and worked dollar examples.
Two numbers define almost every factoring deal: the advance rate and the factor fee.
The advance rate is the percentage of the invoice you get up front—commonly 80–95%. The remainder is the reserve, released to you when your customer pays, minus the factor fee. The factor fee (or discount rate) is the factor’s charge, frequently about 1–5% for each 30-day period the invoice stays unpaid. So on a $10,000 invoice at a 90% advance and a 3% fee paid in 30 days: you get $9,000 now, and when the customer pays you receive the $1,000 reserve minus $300, netting $9,700 total—a $300 cost.
Some factors quote tiered fees (e.g., 1% for the first 15 days, then more each period), which rewards fast-paying customers. Always convert the quote into dollars for your real average days-to-pay before comparing offers. For the underlying math, see how factor rates work.
Factoring prices risk and effort. These are the levers.
$25,000 invoice, 90% advance, 3% fee, paid in 30 days. Up front: $22,500. On payment: $2,500 reserve minus $750 fee. Net proceeds $24,250; cost $750.
$50,000 invoice, 85% advance, 2% for 30 days then +1% per 15 days, paid in 45 days. Up front: $42,500. Fee ≈ 3% = $1,500. Net $48,500; cost $1,500.
$100,000 in monthly invoices, 92% advance, 1.5% blended, paid in ~35 days. Roughly $92,000 available on submission with about $1,500 in monthly cost—illustrating how volume and fast-paying customers drive the rate down.
The headline factor fee isn’t always the whole cost.
Compared head-to-head with a bank loan’s APR, factoring can look expensive—but that’s often the wrong comparison. Factoring is usually accessible when a loan isn’t, funds within a day or two, scales automatically with sales, and offloads collections. For a business that can turn faster cash into more revenue—filling more staffing orders, hauling more loads—the fee frequently pays for itself. If you’d rather keep collections in-house and borrow against receivables instead of selling them, compare A/R financing vs. factoring.
Clients often fixate on the headline rate and miss the value of speed and accessibility. If you advise businesses on financing, a signed referral agreement lets you submit deals for a factoring quote and earn revenue share when they fund. Send a deal for evaluation.
FAQ
Most factoring uses a factor fee of roughly 1–5% for each 30-day period an invoice is outstanding, plus an advance rate of about 80–95% up front. The exact cost depends on your customers’ credit, how fast they pay, your monthly volume, and whether the facility is recourse or non-recourse.
The advance rate is the percentage of the invoice you receive up front (commonly 80–95%). The factor fee is the factor’s charge for the service, typically 1–5% per 30 days. The held-back portion (the reserve) is released to you when your customer pays, minus the fee.
Lower rates come from creditworthy customers, fast payment (30 days vs 60–90), higher monthly volume, larger invoices, and well-understood industries like staffing and trucking. Non-recourse terms and one-off spot factoring push rates higher.
Beyond the factor fee, watch for origination/setup fees, ACH or wire charges, monthly minimums, termination fees, and lockbox or due-diligence fees. Always ask for the all-in cost and convert it to dollars for your typical days-to-pay.
Often yes, when a business invoices other businesses. Factoring is priced against your customers’ credit and typically costs far less on an annualized basis than a merchant cash advance, which is repaid from daily or weekly sales at a high factor rate.
Yes. With a signed referral agreement, a broker or advisor can submit a client for a factoring quote and earn revenue share when the facility funds. Rates and approval are evaluated case by case and are not guaranteed.
Have a deal to place?
Review the referral agreement, sign it, and submit opportunities for evaluation.
