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Cost of Factoring Invoices

Factoring Fees: What to Expect

Accounts receivable factoring is an affordable alternative to traditional lending. As with any financing arrangement, it is important that business owners fully understand the cost of factoring, as well as the benefits.

How Much Do Factoring Companies Charge?

Just like any other type of business lending service, there are fees associated with invoice financing. Factoring rates are calculated based on a number of factors:

  • The volume of the monthly receivables you wish to factor
  • The average size of each invoice you wish to factor
  • Your industry
  • The creditworthiness of your customers
  • The length of time it takes your customers to pay

Average factoring costs fall between 1% and 5% depending on the factors above. Volume plays a huge part in calculating factoring rates. Larger monthly amounts factored equal lower fees. Many factoring companies offer volume discounts.

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Typical Invoice Factoring Rates

Flat Rates vs. Variable Fees

Factoring companies typically calculate rates using a variable fee structure. With variable fees, they discount a small percentage (1 to 3 percent) of the invoice for as long as the invoice goes unpaid. So, the longer your customer takes to pay, the more you’ll pay in fees. A factoring company may charge 2% for the first 30 days and 0.5% for every 10 days that the invoice remains unpaid. Fees are often referred to as invoice discounting rates.

Some factoring companies offer a flat fee structure where a one-time fee is charged up front. With a flat fee structure, the fee remains the same no matter how long the invoice remains open. This type of rate structure is common in the trucking industry. Depending on your industry, one or both of these options may be available and can help you control your costs.

Invoice factoring fees also depend on whether you choose a recourse or non-recourse factoring program. Non-recourse factoring poses more risk to the factoring company, so the costs are slightly higher.

Advance Rates

When your company factors invoices, you’ll typically receive a large percentage of the invoice up front and the remainder is held in a reserve until your customers pay the invoice.

Factoring advance rates vary by industry. Industries that are riskier and harder to fund such as medical and construction can expect advance rates between 60% and 80%. Advances for general businesses and staffing companies can be anywhere from 80% to over 90%. Those in the transportation industry typically see the highest advance rates, ranging from 92% to 97%.

We recommend getting quotes from multiple factoring companies to get a good feel of what you should expect to pay for factoring services and to get the lowest invoice factoring fees for your business.

What Does the Cost of Factoring Offer My Company?

Invoice factoring costs include immediate access to working capital. However, when you start factoring invoices, you’ll see that factoring companies offer more than just immediate funding.

Administrative Support

If you think it would be beneficial, your factoring company can perform critical back office functions at no additional charge to you – credit and background checks, for example, that can quickly eat up your available cash. The invoice financing company will also make collections calls on your behalf and offer 24/7 online reporting so you can stay on top of the cost of factoring to your company.

This will allow you to focus on running your business instead of making sure your customers are paying you and hunting them down if they are not.

A Path to Better Credit

Factoring of invoices isn’t a loan, so you can receive cash without adding a new line of debt to your balance sheet. If your company has poor or not yet established credit, you can use factoring to pay down your other outstanding expenses and reestablish a strong credit rating.


Instead of a strict credit line, invoice factoring gives you access to the cash you need whenever you need it! Your funding potential is only limited by your sales and will grow as your company grows. Also, you can reduce your invoice factoring costs by choosing which invoices to factor and when. Not to mention, factoring won’t add debt to your balance sheet.

What is the Cost of Not Factoring?

Before you ask “How much are the factoring charges?” ask “What is the cost of not factoring my invoices?”

Whether you are just starting up, recovering from financial difficulty, or positioning your company for growth, invoice factoring may make the difference between success and failure.

The cost of factoring is designed to put more money in your account – where it can do the most good. More importantly, invoice factoring is a relationship intended to revitalize your business. The services you receive from an invoice factoring company more than justifies the cost.

You have total control over your invoice factoring costs in two key ways:

1. You decide which accounts to factor, how many invoices to send, and when to send them. If you fully understand your customers’ payment patterns you can hold on to an invoice until closer to the expected payment date to lower your factoring costs.

2. Focus your efforts on reliable, solid paying customers. When you take advantage of free credit checks you can verify that new customers are a good bet and tighten up your clientele to only work with the customers that will truly help your business grow.

Perhaps your company cannot qualify for a bank loan – you can still be approved for factoring in as little as 3 to 5 business days. Maybe a bank loan requires collateral you are unwilling or unable to pledge; invoice factoring does not!

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