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Invoice Factoring
Invoice Factoring Rates: How to Find the Best Deal for Your Business
If you’ve ever shopped for any kind of business funding, one of the first questions you’ll have is about the rates. You have to know what you’ll pay to borrow money (or in the case of invoice factoring and invoice financing, having your cash now as opposed to 30 days or more) and evaluate whether you’re getting a fair price and if that price provides enough value. That’s why we’re diving into everything you need to know about invoice factoring rates in this post. You’ll find answers to common questions, enabling you to accurately weigh any offer you get from a factoring company.
We’ve also made key updates for 2025, including the comparison chart of different factoring companies at the end of this post.
What is a typical factoring rate?
A typical factoring rate ranges from 1% to 5% of the invoice value per month. The exact rate depends on details such as the creditworthiness of the customers, net terms, and the type of rate.
The main factoring fee is called the transaction fee or discount rate. This is the amount of money that the factoring company withholds from the invoice total as their payment for advancing cash and waiting to get paid for you. However, interest rate isn’t the only information to consider when you’re evaluating offers from factoring companies.
7 Things that Affect Total Factoring Cost
When you’re shopping for invoice factoring, bear in mind that the factoring rate and factoring cost are not the same thing. While the rate is part of the cost, other influences can drastically change how much you pay to for account receivable factoring. Here are critical aspects to consider:
1. Hidden fees: Understanding the full cost of factoring goes beyond the base transaction fee. Many companies will advertise a low rate, and then add on hidden fees later, which can seriously impact the total factoring cost. Be wary of various fees such as annual fees, monthly maintenance, initial setup, and more that vary by individual company. Also, be mindful of late payment penalties.
Impact: Thousands of dollars could be added to your final cost.
Action: Ask to see a list of all potential fees with dollar amounts from each accounts receivable financing partner you’re considering.
2. Contract flexibility: Many factoring companies require you to sign a contract committing you to getting receivables paid early for a specific time frame, up to 100% of your receivables for a whole year.
Impact: Ironically, you could waste working capital to get more working capital than you need.
Action: Ask any partner you’re considering whether they offer spot factoring. This approach allows you to choose specific invoices for funding on an as-needed basis, giving you greater control over your cash flow and avoiding unnecessary costs for unneeded funding.
3. Minimum volume requirements: Traditional factoring agreements might require you to factor 100% of your invoices.
Impact: You could waste money on capital you don’t really need.
Action: Ask about spot factoring as an option and compare the costs of traditional factoring with FundThrough–which features no hidden fees, no long-term commitments (after your customer pays their invoice), and no minimum volume requirements.
4. Service Level Agreements (SLAs): The efficiency of the factoring service is crucial. Ask about the time frames for funding after invoice submission, especially for passthrough payments. (NOTE: When your customer changes payment details to the factoring company, this is for all future payments to eliminate switching back and forth. Your factoring partner will “pass through” any unfunded invoices to you.)
Impact: Slow payments, especially for passthrough payments can ironically slow down your cash flow.
Action: Ensure that your partner has an explicit SLA for payments, especially passthroughs.
5. Reputation: The factoring company’s reputation is important since they will be directly interacting with your customers. A reliable factoring partner should treat your clients professionally and ensure a smooth process. There are several credible sources that can help you make a decision when it comes to finding the right funding partner.
Impact: An unprofessional company can damage critical customer relationships.
Action: Do a quick search of any partners on your favorite search engine or ChatGPT. FundThrough’s strong reputation is evidenced by partnerships with QuickBooks and Enverus, 4.7 stars on Google, and recognition as the Best Overall Factoring Company by Forbes Advisor for 2024.
6. Advance Rates: This is the percentage of your invoice that factoring companies initially advance you; when your customer pays the invoice they then send the remaining balance less fees. Advance rates can vary from 80% to 95% of the invoice value, meaning that you’ll wait to get anywhere between 5% to 20% of your funding.
Impact: You could end up with less immediate funding than you need.
Action: Ensure you’re aware of your advance rate. FundThrough offers 100% advance rates, less one flat fee.
7. Recourse vs Non-Recourse: With non-recourse factoring agreements, if your client doesn’t pay their invoice, you won’t have to repay the advance–but they’re more expensive than recourse. If your client is creditworthy, you can save money with a recourse factoring agreement.
Ready to fund your invoices for the best deal?
What are factoring fees?
The fees you can expect vary between companies. In addition to the percentage a factor keeps, there are dozens of possible hidden fees out there. These are the ones we’ve heard of:
- ACH fee: This is the fee for the factor’s bank wiring funds to your account, passed on to you. Also known as a wire fee.
- Application fee: A flat or percentage fee that’s highly variable. It can also be called an origination fee.
- Same day funding fee: Some factoring companies charge extra for getting paid same day.
- Closing fee:An additional amount the factoring company keeps from the invoice
- Monthly fee: If you sign a contract requiring that you sell a certain portion of your invoices on a monthly basis and you don’t meet the minimum, you could end up paying this fee.
- Termination fee: Again, this applies if you signed a factoring agreement or long-term contract and want to end it early.
- Annual review fee: An annual charge for the review of your account.
- Exception fee: Incurred for invoices that require additional handling or deviate from normal processing.
- Early payment fee: Assessed for your customer paying their invoice early
- Passthrough fee: Applied when forwarding non-advanced payments to the client.
- Late payment penalty fee: Charged when payments from customers are late, in addition to the factoring fee.
- Early termination fee: If you break the contract early, you’re charged this fee.
- Standard termination fee: This fee is charged for terminating the contract at the appropriate time.
It’s easy to see how hidden fees can add up over time, making it important to ask any factoring company you’re considering about their average accounts receivable factoring rates and any additional fees.
To give you our perspective, FundThrough’s current invoice factoring rates are available on our pricing page. We don’t charge any hidden fees, and you’re not locked into a contract obligating you to fund invoices. You can choose which invoices to fund when it makes sense for you.
Ready to fund your invoices for the best deal?
What determines invoice factoring rates?
Invoice factoring rates depend on the company and how they charge for advancing your invoice. Some of the factors that can influence the final price include:
- The invoice terms: Shorter terms, like Net 30, usually come with lower rates compared to longer terms such as Net 60, assuming timely payment by your customer.
- Size of the invoice: Bigger invoices might attract lower factoring fees, as some companies reduce rates for larger amounts.
- Customer creditworthiness: The better your customer’s credit, the lower the risk for the factoring company, which can lead to better rates for you. (Bad credit results in rejection.)
- Industry: Factoring rates can vary by industry, especially if your sector is considered high-risk. Finding a factor that specializes in your industry, like oil and gas or other specialized fields that use factoring are options.
- Volume of invoices: Consistently factoring a large volume of invoices could qualify you for lower rates, as it represents steady business for the factoring company.
- Recourse vs non-recourse factoring: In recourse factoring, you’re responsible if your customer fails to pay the invoice. Non-recourse factoring removes this risk from you, but usually at a higher cost due to the factoring company taking on more risk.
Factoring Fee Types and Examples
There are several ways invoice factoring companies charge for their factoring services, including flat rate, variable rate, and prime plus margin fee (a type of variable pricing), and daily rate. We’ll explore them below, so you have a better understanding of common factoring rate structures, and how to get the best invoice factoring rates for your needs.
The difference between flat rate vs tiered rates (aka variable invoice factoring rates)
A flat factoring rate, or flat fee, is exactly what it sounds like. The factoring company charges a flat percentage for every invoice. After you’ve paid that price up front, you don’t pay anymore for as long as the invoice stays open. FundThrough charges flat rates based on net terms.
Tiered factoring rates, also known as variable invoice factoring rates, are more complicated. Typically the factor will take a percentage of the invoice for as long as it goes unpaid. The upside is that if your customer pays promptly, you might save money with a variable rate. The cost of factoring is deducted from your advance and is based on when the invoice will be paid:
1-30 days = 2.75% • 31-45 days = 3.75%
46-60 days = 5.5% • 61 days and up = 8.25%
Prime plus margin invoice factoring rates
Another model you’ll find sometimes is prime plus margin fee. In this style of pricing, the factor uses the prime interest rate (whatever it is that day) and they charge you a percentage on top of that. So if the prime rate is 3.25 percent + 2 percent discount rate, you’d be charged an invoice factoring rate of 5.25 percent. Unless the prime rate only applies to your advance rate. Some factors only advance a certain portion of the invoice, say 80 percent, and will only forward the rest when the invoice (less the discount rate) is paid.
Daily rates
Daily rates (or daily fee) are usually offered in specific situations. You’re charged a certain percentage of the invoice value for every day it goes unpaid; daily rates also typically require an advance rate instead getting 100% of your invoice paid upfront. You can also opt to have the equivalent daily rate of whatever flat rate was agreed upon – the same fee, simply divided by the days the invoice ultimately stays outstanding.
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Invoice Factoring Rate Examples: Flat vs Tiered vs Prime Plus Margin
Let’s go over an example of factoring an invoice using the different ways factoring companies structure their factoring fees to give you an idea of what to expect with different fee structures.
Flat rate factoring fee example
Say you factor a $100,000 invoice that’s due in 60 days. The factoring company charges you a flat rate of 5% in order to factor your invoice. This means that you get an advance for $95,000, and pay a $5,000 invoice factoring fee. With flat rate factoring, you would be charged the same amount (in this case, 5%) even if the invoice due date was 30 days or 90 days, or, if the invoice was twice as big.
Tiered factoring fee example
Let’s use the same example of factoring a $100,000 invoice that’s due in 60 days. With tiered factoring the factor charges you different interest rates for different periods of time the invoice is outstanding. So say the factoring company charges 2.75% for 30 days and 5.5% for 60 days. Within a few days of factoring the invoice, $94,500 hits your account. If the invoice had been due in 30 days, the factor would’ve only withheld $2,750, instead of $5,500.
Prime plus margin rate fee example
Taking once again the example where you factor a $100,000 invoice that’s due in 60 days. In this scenario, the factoring company charges 5.5% for 60 days, plus the prime rate that day of 3 percent that applies to your entire invoice total (not just the advance rate). Your rate comes out to 8.5%. This means you end up paying $8,500 for a total advance of $91,500.
Daily rate example
This calculation assumes an invoice with 30 day net terms:
- Invoice face value: $100,000
- Advance rate: 80%, for an immediate payment of $80,000
- Hold back: 20%, a.k.a., $20,000
- Daily rate = 2.75%/30 days = 0.09167% per day
- Total fees, assuming on-time payment: $2,750
- Remitted amount: $17,250, once payment is received
Factoring Rate Comparison
As you might expect, different companies offer different factoring rates, advance rates, fees, limits, speed, and contract requirements. We’ve gone ahead and done the work for you to compare FundThrough’s invoice factoring rates, along with a few other important data points, with some other factoring companies, to hopefully make the process as simple as possible.
FundThrough | Universal Funding | Riviera Finance | altLINE | eCapital | |
Factoring Rate (per 30 days) | 2.75% | 0.55%-2% | Start at 2% | 0.8%-3% | Unavailable online |
Additional Fees | None | Startup fee | Early termination fee | Origination fee: $150-$500 | None |
Funding Limit | Unlimited | $25K-$20MM | $5K-$2MM | $10K-$5MM in invoices per month | $30MM |
Advance Rate | 100% | Up to 95% | 95% | 80%-90% | Unavailable online |
Funding Speed | Within 24 hours after approval | Within 24 hours after approval | Within 24 hours after approval | 24-48 hours | Same day |
Contract required | No long term contract | 1-2 years | 6 months | 6-12 months | Unavailable online |
Invoice Factoring vs Banks: The True Costs
When CEOs and finance pros compare the price of factoring with their bank, the traditional route often appears to be a lot less expensive. However, we always suggest taking into account the overall cost rather than just the rate to make a fully informed decision.
If you pass on a big contract which could grow your business, is the bank truly saving you money? The value of a strong banking relationship is clear. However, if funding limits are also limiting growth, it may be time to explore creative funding methods like factoring. Businesses can maintain their valuable bank partnerships while simultaneously improving their cash flow (and avoiding more debt) simply by having their invoices paid quicker.
Offset factoring costs with your team structure
One creative way to offset factoring costs is by building factoring into your business so that you can structure your finance team around it. The account manager at your factoring company should keep you updated about the status of your A/R and help you manage it, eliminating the need for an in house AR specialist. (A factoring partner also brings added value through customer credit checks and proactively ensuring you’re well-capitalized.) Our clients regularly tell us that their account manager is a part of their team for those reasons.
Making Sense of Your Total Invoice Factoring Costs: Beyond the Rates
Understanding the difference between invoice factoring costs and rates is key to avoiding unexpected expenses. The factoring rate is just the percentage kept by the company for their services, but the real cost includes this rate plus any other fees, along with costs to factor more than you need to if you get locked into a contract that obligates you to fund invoices.
When looking at different companies, always ask for the full cost, not just the rate, and make sure they explain everything upfront. The cheapest rate might end up more expensive with all the extra fees and funding requirements.
FundThrough is all about being clear with costs from the start, with no hidden fees, and we even advance the whole invoice amount, not just 80%. We make sure you know exactly what you’re paying for, so there are no surprises later.
Invoice Factoring Rates FAQs
Your questions answered.
What are typical factoring rates?
Invoice factoring rates vary depending on the net terms, risk, customer creditworthiness, and more. Typically, rates range from 1-5% per month, but can be as low as 0.5% or as high as 6%. Remember that hidden fees add to the overall factoring cost.
How can I find the best invoice factoring rate for my business?
Finding the best invoice factoring rate starts with choosing a creditworthy customer whose invoices have short net terms. From there, you’ll need to compare pricing–but the cheapest rate is not always the least expensive option. Many factoring companies charge a variety of fees on top of the transaction rate. Asking any company you’re considering about their fees will show you the overall cost.
What is a good rate for factoring?
A good rate for factoring is between 1 percent and 6 percent per 30 day net terms. Be mindful of additional fees to accurately compare pricing and ensure you get a good deal – not just a good factoring rate.
Is invoice factoring risky?
The short answer is that if your customers are creditworthy and pay their invoices reliably, any risk involved with invoice factoring is very low. If you’re factoring with recourse, you’re still on the hook for an unpaid invoice that you’ve advanced. However, most factoring companies will work with you to come to a fair solution. Still wondering if invoice factoring is risky for you? Read more here.
Do banks factor invoices?
No, banks don’t factor invoices. Banks are in the business of lending money. Banks do, however, offer different types of financing that can be complementary to factoring (if you can qualify and have time to go through the process).
Is invoice factoring considered a loan?
No! Invoice factoring is not considered a loan. That’s one nice thing about factoring: it’s not debt. You’re simply getting an advance on work you’ve already done. You don’t have to pay your advance back because your customer just pays their invoice to the factoring company. Once that happens, there’s no further commitment.
What Is Invoice Factoring?
If you’re asking yourself, what is invoice factoring?, know that it’s a form of financing where a business owner sells outstanding invoices to a factoring company for fast access to funds. The business owner receives cash for the invoice amount, usually less any fees, ahead of the payment terms. The business owner’s customer, who is responsible for paying the invoice, instead pays the invoice amount to the factoring company according to the original payment terms.
Invoice factoring also goes by the terms accounts receivable factoring or receivable financing.
Why Factor Invoices?
B2B businesses use invoice factoring for different reasons. Your company should consider making use of an invoice factoring solution if:
- Banks have turned you down for a business loan or line of credit, or you don’t want to be tied up in traditional bank loans or lines of credit.
- You need a quick boost of cash flow – in a few business days, rather than a few months.
- If you need reliable access to cash flow for paying daily expenses and/or fueling business growth.
- You’re a startup company without much credit history yet. In many cases, invoice factoring doesn’t require a credit check or high credit score because it relies on the credit rating of your customers. Even businesses with bad credit can still often qualify for invoice factoring.
- You have slow-paying customers. Many customers insist on 30, 60, and even 90 day net terms, which means you’re without payment for months, for work you’ve already completed.
- You want more time to focus on your business instead of chasing down late payments and managing your A/R.
How much does factoring cost? What is the factoring rate for accounts receivable?
Total factoring costs include a discount rate of 1% to 5% of the invoice value plus any hidden fees, like application fees or customer review fees. The discount rate depends on details such as the customer’s creditworthiness, invoice amount, and payment terms.
How to calculate factoring costs
To calculate factoring costs, determine your rate type: tiered or daily. A tiered rate assigns a discount by net term length. For a daily rate, multiply the rate by the number of days the invoice aged. Finally, add in fees, such as an application fee or wire fee, for the final figure.