Invoice Factoring Fees: The Complete Cost Anatomy
The discount rate is the number they advertise. It is rarely the number that decides what factoring costs you.
Two factors quote you 2%. One of them ends up costing nearly twice the other. Nothing in that sentence is unusual — it is the normal outcome of comparing factoring on the advertised rate, which is one of at least five variables that decide what you actually pay. This page covers all five, in the order they appear on your bank statement.
1. The discount rate, and the period it covers
The discount rate is the number every factor leads with, and it is meaningless without its period. "2%" can mean 2% per 30 days, 2% per 15 days, or 2% for the first 30 days with an increment for each additional period after that. The same headline number can therefore describe products that differ by a factor of two.
Ask one question and get the answer in writing: 2% per what, and what happens on day 31, 45 and 60?
Flat versus tiered
A flat rate charges the same percentage regardless of how long the invoice takes to pay. It is simple to model, and it favours you when your customers are slow — but you overpay when they are fast, because you are charged a 30-day price on an invoice settled in eight days.
A tiered rate steps up as the invoice ages. Typically a base rate covers the first 30 days, with an increment for each additional 15 or 30 days. This is cheaper when your customers pay quickly and considerably more expensive when they drift.
The decision follows from your actual days-to-pay, not from which structure sounds simpler. Pull your last three months of receivables and calculate the real average. If your customers settle around 25 days, tiered usually wins. If they routinely reach 50, flat may be cheaper and is certainly more predictable.
The step-up trap
Watch for agreements that step in full periods rather than pro-rata. Under a full-period structure an invoice paid on day 31 is charged the same as one paid on day 60. A single day past the boundary doubles the fee on that invoice. Ask explicitly whether the rate pro-rates or steps.
2. The advance rate, and why it is a cost
The advance rate is the percentage of the invoice you receive up front. The remainder — the reserve — is held by the factor until your customer pays.
Most businesses read the advance rate as a convenience feature. It is better understood as a cost. If a factor advances 90% and holds 10%, that reserve is your working capital sitting in someone else's account. On $100,000 of monthly invoicing, that is $10,000 permanently unavailable to you for as long as you use the facility. It is not lost — it comes back as invoices settle — but there is always roughly a month of it parked.
Modelling advance against rate
Because of that, a higher advance at a slightly higher rate is frequently the better deal, and almost nobody models it that way. Compare two offers on the same $100,000 month:
- Offer A: 2.5% rate, 90% advance — cheaper fee, $10,000 permanently tied up.
- Offer B: 2.9% rate, 97% advance — $400 more in fees, but $7,000 more working capital available every month.
If that $7,000 lets you take on work you would otherwise decline, Offer B is obviously better despite the higher rate. If it would simply sit in your account, Offer A wins. The point is that this is a real decision with a real answer for your business, and the advertised rate cannot tell you which.
Reserve release timing
Related and frequently overlooked: how many days after your customer pays does the reserve actually reach you? Some factors release on the day of collection. Others batch weekly. A factor holding your reserve for an extra week after collection is financing itself with your money, and this never appears in a rate comparison. Ask for the release timing in writing.
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3. The add-on fees
Individually small, collectively decisive — particularly at low invoice volumes, where fixed fees dominate percentage fees.
| Fee | What it is | When it hurts |
|---|---|---|
| ACH or wire fee | Charged per transfer of funds to you | High invoice count, low invoice value. At 40 invoices a month a per-transfer fee is a real percentage of margin. |
| Same-day surcharge | A premium for funding today rather than tomorrow | When you fund most invoices same-day — the advertised speed and advertised rate may not apply together. |
| Monthly minimum | A floor on fees whether or not you factor | Seasonal or irregular volume. This is the single most common reason a low rate becomes expensive. |
| Credit check fee | Per new customer approved | When you take on many new customers, or work with brokers you have not used before. |
| Lockbox / account fee | Monthly, for maintaining the collection account | Always — it is fixed, so it hits smallest operators hardest as a percentage. |
| Application / due diligence | Charged up front, often non-refundable | When shopping several factors, or if you are declined after paying it. |
| Unused line fee | Charged on the facility you did not draw | When your volume is lumpy and you sized the facility for peak. |
| Termination fee | Charged for leaving before the term ends | When the relationship is not working — precisely when you can least afford it. |
Why minimums matter more than rates for small operators
Work an example. A factor quotes 2% with a $1,500 monthly minimum. In a good month you invoice $120,000, pay $2,400, and the minimum is irrelevant. In a slow month you invoice $30,000 — your usage fee is $600, but you pay $1,500. Your effective rate that month is 5%, two and a half times the advertised number.
If your volume is stable and comfortably above the threshold, a minimum is harmless. If it is seasonal, lumpy, or you are newly launched and still ramping, a minimum can quietly become the largest single line in your factoring cost. Always price a bad month, not an average one.
4. The exit cost
This is the section people skip and later regret. Four clauses decide what leaving costs.
- Term length and auto-renewal. Many agreements renew automatically unless cancelled within a narrow window. A 12-month term with a 60-day notice period means the decision to leave has to be made at month ten, not month twelve.
- Termination notice period. Commonly 30, 60 or 90 days. Miss it by a day and you are in for another full term. Diarise the date the day you sign — this is the single cheapest piece of admin in the whole relationship.
- Early termination fee. Sometimes a flat sum, sometimes the remaining monthly minimums for the entire balance of the term. The second version can be very expensive and is not unusual.
- UCC-1 release timing. Your factor files a UCC-1 financing statement against your receivables. Until it is terminated, no other lender or factor can take first position. Slow releases block your next facility, and there is rarely a contractual deadline forcing speed.
The full switching sequence, in order →
5. The costs that are not fees at all
Two real costs never appear on a fee schedule.
Administrative time. If submitting an invoice takes fifteen minutes because the portal is poor and the documentation requirements are fussy, and you do that forty times a month, that is ten hours. Price it. A factor with a genuinely good mobile submission flow can be worth more than a quarter point on the rate.
Customer relationship cost. Under most factoring agreements your customers are notified to pay the factor instead of you, and the factor's collections team contacts them. How that team behaves is now part of your customer experience. Ask how they communicate, how aggressive the escalation path is, and whether you can flag sensitive accounts.
Comparing two quotes properly
Model a realistic month, not a single invoice. You need four inputs from your own books, not from the factor:
- Actual monthly invoice volume in dollars
- Actual invoice count per month
- Your customers' real average days-to-pay
- Your worst realistic month, for the minimum test
Then run both quotes through the same month including minimums and per-transfer fees, and compare total monthly cost as a percentage of revenue — not the headline rate. The calculator does exactly this →
How to read the blanks on this site
Every populated figure on this site was read from the company's own published pages, with the source and date attached. Where a cell says Not published, the company does not put that term in writing on its site — and in a market where the contract matters more than the headline rate, what a factor declines to publish is often the more useful signal. We never fill a gap with an estimate.
The written questions to send every factor
Copy this list into an email. Anything a factor will not answer in writing before you sign, they will not answer in writing afterwards either.
- What is the discount rate, per what period, and does it pro-rate or step in full periods?
- What is the advance rate, and how many days after my customer pays is the reserve released?
- List every additional fee: ACH, wire, same-day, credit check, lockbox, application, unused line.
- Is there a monthly minimum? What is it, and what does a $30,000 month cost me under it?
- What is the term, the notice window, and the early termination fee?
- Recourse or non-recourse? If non-recourse, what is the covered-event definition?
- How quickly do you release the UCC-1 after termination?
- How does your team contact my customers, and can I flag sensitive accounts?