Invoice factoring rates are easy to misread. Factoring companies love to quote “rates as low as 1%.” That number is real, but it rarely tells you what you’ll actually pay. The true cost depends on how the fee is structured, how fast your customers pay and the extra fees in the contract. Here’s how to work out the real number before you sign.
The two numbers that matter: advance rate and discount fee
- Advance rate: the share of the invoice you get up front, usually 70% to 95% depending on industry and customer credit.
- Discount fee: what the factor keeps, usually 1% to 5% of the invoice face value, charged flat or by time period.
The rest, called the reserve, is released to you when your customer pays, minus the fee.
Flat fees versus tiered fees
Flat fee: one percentage no matter when the customer pays. Simple and predictable.
Tiered fee: a rate charged per period, such as 1.25% per 15 days or 2% per 30 days. The longer your customer takes, the more you pay. A low-sounding rate can get expensive if your customers pay in 60 days.
A worked example
You factor a $50,000 invoice. The factor advances 85% and charges 1.25% per 15 days. Your customer pays in 45 days.
| Invoice face value | $50,000 |
| Advance (85%) | $42,500 |
| Fee: 3 periods × 1.25% = 3.75% | $1,875 |
| Reserve released after payment | $5,625 |
$1,875 for 45 days of access to $42,500 works out to roughly 4.4% for that period, or around 35% annualized. If the same customer paid in 20 days, the fee would drop to 2.5%, or $1,250.
That’s why your customers’ payment speed matters as much as the quoted rate.
The fees nobody mentions
- Application or due diligence fees to open the account.
- UCC filing and search fees.
- Credit check fees per new customer.
- ACH, wire or same-day funding fees on every advance.
- Monthly minimum volume: pay a fee if you factor less than the contract minimum.
- Lockbox or invoice processing fees.
- Early termination fees if you leave before the contract term ends.
- Non-recourse premiums for credit protection. See recourse vs. non-recourse factoring.
Ask for the full fee schedule in writing and add every line to your math.
How factoring compares on cost
- Business line of credit: usually cheaper if you qualify, but harder to get.
- Working capital loan: fixed payments, often better for a one-time need.
- Merchant cash advance: often more expensive than factoring, with daily or weekly payments. See MCA vs. factoring.
How to lower your factoring cost
- Factor invoices from your fastest-paying customers.
- Negotiate volume tiers as your monthly invoices grow.
- Ask for spot factoring rather than committing your whole ledger.
- Avoid long contracts with large monthly minimums.
- Keep clean paperwork so invoices fund on the first try.
Industry notes
Trucking and hauling invoices often get higher advance rates and flat fees, especially on loads for large freight brokers. Construction invoices usually get lower advance rates because of retainage and disputes; see construction invoice factoring. Staffing firms factor weekly payroll; see payroll funding for staffing firms.
FAQ
What’s a good factoring rate?
There’s no single number. A 2% flat fee on customers who pay in 60 days can beat a 1% per-15-day fee on the same customers. Compare total cost on your real payment times.
Is factoring a loan?
No. It’s the sale of an invoice, so it doesn’t show as debt the way a loan does, though the factor will usually file a UCC lien on your receivables.
Can I negotiate the fee?
Often, yes, especially with higher volume, creditworthy customers and a clean payment history.
Get a straight quote
Liberty Capital Group lays out the advance rate, fee schedule and contract terms in writing before you sign. Read our invoice factoring overview or get a quote.