Invoice factoring rates typically range from 1–5% per 30-day period on the invoice face value, with advance rates of 70–90% and a reserve (10–30%) held until the customer pays. Additional fees include ACH/wire fees ($15–$35 per advance), monthly minimum fees for contract facilities, and setup fees ($0–$500 at origination). Total cost depends heavily on how quickly your customers pay.
Factoring pricing is multi-layered — understanding each component prevents surprises when the reserve is released. The four main components are: (1) the discount rate (factoring fee), (2) the advance rate, (3) the reserve, and (4) ancillary fees. These interact: a high advance rate is only valuable if the discount rate is competitive, and a deep reserve reduces the working-capital benefit of factoring.
The discount rate (also called the factoring fee, factor rate, or factoring commission) is the primary cost lever. Most factors structure fees as a flat rate per 30-day period that the invoice is outstanding — not a monthly APR applied to the advance. Example: a 2% per 30-day rate on a $100,000 invoice = $2,000 for every 30 days the invoice is unpaid. If the customer pays in 45 days, the fee is $3,000 (1.5 × $2,000). Under IRS Publication 535, factoring fees are deductible as ordinary business expenses in the year the receivable is sold. Discount rates vary by: invoice aging tier (newer invoices are cheaper; invoices over 60 days old are priced higher or declined), customer credit quality, industry, and factoring volume (contract facilities with $100k+/month volume get lower rates vs. spot factoring).
The advance rate is the percentage of the invoice the factor pays immediately at funding. A $100,000 invoice at an 85% advance rate yields an $85,000 same-day wire. Advance rates are driven by: industry risk (trucking/staffing often see 90–95%; construction 70–80% due to lien waiver complexity), customer creditworthiness, and invoice concentration (if one customer represents 30%+ of the factoring facility, the advance rate may be reduced on that customer's invoices). The Federal Reserve's 2024 Small Business Credit Survey found that businesses using factoring reported a median effective advance rate of 82% of invoice face value across all industries.
The reserve is the portion of the invoice held back by the factor as a credit buffer — it protects the factor against disputes, short payments, and chargebacks. The reserve is not a fee — it's returned to you when the customer pays in full, minus the accrued factoring fee. A 15% reserve on a $100,000 invoice = $15,000 withheld at funding, returned when the customer pays minus the discount fee. Reserve rate = 100% minus advance rate.
Factoring fees are not quoted as APR — they are quoted as a flat fee per period. Converting to APR provides a fair comparison against other financing options. Formula: Effective APR ≈ (factoring fee / advance amount) × (365 / days outstanding). Example: $100,000 invoice, 80% advance = $80,000 advanced, 2.5% factoring fee per 30 days, customer pays in 60 days. Fee = $100,000 × 2.5% × 2 = $5,000. APR = ($5,000 / $80,000) × (365 / 60) ≈ 38.0%. The CFPB's research on small business financing disclosures has noted that inconsistent fee disclosure in factoring makes cost comparison difficult — always ask for the all-in effective APR when evaluating a factoring proposal.
Invoice face: $75,000. Advance rate: 85% → advance = $63,750 wired day 1. Reserve: $11,250. Discount rate: 2.0% per 30 days. Customer pays at 45 days. Fee = $75,000 × 2.0% × 1.5 = $2,250. Wire fee: $25. Reserve release: $11,250 − $2,250 − $25 = $8,975 returned at day 45. Total received: $63,750 + $8,975 = $72,725. Net cost: $2,275 on a $63,750 advance for 45 days. Effective APR ≈ 29.1%.