How Much Does Invoice Factoring Costs?
Factoring Fees & Factoring Rates

A common concern among factoring prospects is the cost of factoring receivables. Unfortunately there’s no “one-size-fits-all” rule when determining the cost of factoring services. Despite the teaser rate advertised by a factoring company, the final cost for you will depend on the terms of your factoring agreement, which are based on your individual company and client portfolio characteristics.

An abundance of confusing information exists online; we’ll try our best to clarify and organize it for you.

In this document we’ll elaborate on the following subjects:

  1. How much a factoring company charges
  2. What a factoring fee is
  3. What a factoring rate is
  4. Different A/R factoring rates and fees models
  5. Receivable factoring rates that your business can realistically obtain

So, how much do factoring companies charge?

Factoring companies generally use two main fee structure models to charge for their services. The first model consists of just one all-inclusive fee. The second one usually includes two types of fees: invoice factoring fees and factoring account fees.

It’s important to understand how the fees are applied. For instance, you may find that the single-fee model ends up costing your company significantly more in the long run. We’ll provide comprehensive information so you can understand all the elements that influence the cost of factoring and also learn how factors (or computer algorithms in some cases) evaluate your company before defining your rates and fees.

Your learning process begins here. Let’s talk about accounts receivable factoring fees.

What are Factoring Fees?

factoring fees

Factoring fees amount to the discount factoring companies receive when purchasing invoices in exchange for the immediate cash flow they provide. These fees are calculated by applying a factoring rate either on the amount advanced or on the invoice face value depending on the agreed upon discount rate structure. Factoring fees begin accruing on the day the receivable is purchased and are usually collected by the factor when the invoice is paid.

Here is a simplified factoring fee example:

  • Invoice face value: $1,000
  • Amount advanced: $800
  • Factoring rate: 2%
  • Factoring fee if calculated on amount advanced = $800 x 2% = $16
  • Factoring fee if calculated on invoice face value =$1000 x 2% = $20

We’ll show you more realistic examples of common factoring rate structures and rate calculation details later on this page.

What are Factoring Rates?

Factoring rates (a.k.a. factoring discount) are used to calculate the factoring fee that your company will pay for factoring services. There are several factoring rate models that factoring companies use. The most popular are a “flat discount rate” and a combination of a “flat discount plus margin”.

types of factoring rates

The invoice factoring rate that your company will be offered mainly depends on the following three variables:

  1. The model the factoring company uses to structure its discount rates,
  2. The risk level of your company and your clients, and
  3. The amount of invoices you plan to sell each month.

This section will help you understand how factoring rates are usually structured

Factoring companies use several parameters to structure their discount rates. Understanding how rates are structured is crucial when evaluating factoring agreements. We will now describe the two most common approaches, with examples, currently used in the factoring industry.

Factoring Rate Calculation Examples:

  • Let’s say that you are selling a $100 invoice that will be paid in 60 days. You have been offered an advance rate of 80%.
  • Let’s see how factoring fees will be calculated using the two most common methods.

Click here to learn about factoring advance rates.

Typical Invoice Factoring Fees & Rate Models

Option One: Factoring fee based on a Flat Discount

Flat Discount: In this rate model, commonly used by the new wave of online lenders, factoring company rates are applied on the gross invoice value, not on the amount advanced, to calculate the factoring fee.

Flat Discount Factoring Fee Calculation Example:

Let’s say you’ve been offered a 2% Flat Discount Rate for the first 30 days and an additional 1% Flat Discount Rate every 30 days afterward.

Your $100 invoice factoring fee would then be:

  • First 30 days: $100 *2% = $2.00
  • Second 30 days: $100 * 1% = $1.00
  • Your total factoring fee if your invoice is paid in 60 days = $2+$1 = $3

Here is a simple Factoring Flat Discount Calculator for you to input your numbers and see how it works.

Option Two: Factoring fee based on a combination of a Flat Discount and PRIME plus Margin

Flat Discount and PRIME + Margin: Most factoring companies will use a combination of a flat fee and an annual interest rate to define their discount rates.

Flat Discount and PRIME + Margin Factoring Fee Calculation Example:

NOTE: Prime rate is the short-term interest rate (annual) used in the US banking system. At the time this post was updated (September 2017) the Prime Rate was around 4.25%.

Let’s say your agreement states that your factoring discount is PRIME + 2 % plus a flat discount of 1.00% every 30 days.

Your $100 invoice, if it’s paid in 60 days, will be charged the following factoring fees:

  1. First let’s calculate the PRIME+margin fee
    PRIME plus margin: 4.25% + 2% = 6.25% annual
    PRIME + Margin daily rate = 6.25% /360 = 0.017%.

    This fee is calculated on the amount advanced, not on the gross invoice amount so we need to calculate your advance.

    Amount advanced: $100 * 80% = $80

    The part of your fee based on prime plus margin would then be: $80 x 0.017% x 60 days = $0.84

  2. Second, let’s calculate the flat discount
    Flat discount= 1% every 30 days = 2% for 60 days
    The flat discount for 60 days would be $100*2.00% = $2.00

  3. Lastly, let’s put them together to calculate the total factoring fee

    Total factoring fees
    would be $0.84+$2= =$2.84

Here is a Factoring Flat Discount and PRIME plus Margin Calculator for you to input your numbers and see how this rate structure works.

The options described above represent the most common factoring agreements. However, these are not the only ones. It is very important for you to fully read and understand a factoring proposal, review the numbers and take into account other important variables before picking a factoring company.

What Factoring Rate Can Your Company Get?

As a general rule you can expect to pay from 1 to 4% of the invoice amount factored to your factoring company as invoice factoring fees.

Whether the receivable factoring company uses a flat discount, prime plus a margin, or another model to structure the factoring discount, your offered rate will depend on your company’s risk level to the factor.

Aspects that influence your company and clients’ risk to a factor

There are many factors that influence your factoring discount rate. The most important ones are the following:

  • You company’s average collection period (days sales outstanding)
  • The concentration rate of your portfolio of customers
  • Your company’s sales volume
  • The creditworthiness of your customers

Customer Concentration

As part of the factoring approval process, a factoring company needs to analyze your client portfolio and the percentage of businesses each client represents to your company. The decision maker will give special attention to the customer concentration ratio to measure the risk of doing business with your company in case of the default of an account.

Let’s see how this works:

A company with just one customer has 100% concentration. A decision maker will very likely find this situation extremely risky because if something negative occurs with this customer, your business will suffer. Unless this single customer is a highly reputable and creditworthy business it is very unlikely that a factoring company will offer you a deal. If it takes the risk, your discount rate will likely be higher in addition to a lower advance rate.

As a general rule, the more customers you have and the more evenly your sales are distributed among them, the lower the customer concentration, and overall risk. Companies with low customer concentration tend to get better factoring rates than those with high concentration.

Here is a simple calculator in case you would you like to estimate your company’s customer concentration.(This calculator will work with a portfolio of 10 customers or less. If you have more than 10 customers, contact us and we'll calculate it for you.)

Important Note: As with most variables used to calculate your business risk, customer concentration is a relative factor. Only a deep analysis of your portfolio can help a factoring company make a final decision. E.g. if you have a high concentration but your main customers are companies that the receivable factoring company qualifies as low risk, this high concentration rate may have no influence in establishing your invoice discount rate.

Days Sales Outstanding (DSO)

Day Sales Outstanding (DSO) is your company’s average collection period.

As a general rule, the shorter the time it takes to collect a customer's invoice, the lower the risk of default and the lower the discount rate your business may qualify for.

Results vary according to your business’s field of industry. However, a DSO under 1.5 times your payment terms is usually considered a good result.

Here is a simple calculator to help you estimate your company’s DSO.The smaller your DSO ratio the better the deal you will likely get.


The amount of accounts receivable your company plans to factor every month will, most likely, significantly affect your factoring discount rate. Factoring companies incur a number of costs to set up and manage your account, and many of these costs tend to be almost the same whether you sell invoices for $10k or $100k.

As a general rule the more invoices you plan to sell, the lower the rate you will likely pay.


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