Published October 1, 2026
The first time I looked at a factoring quote, the headline number was "2%." That sounded almost free. Then I read the contract and found a second fee, a reserve, a wire charge, and a monthly minimum, and I realized the headline number was the least informative figure on the page. Here is how the pricing actually works, with the math done on a real invoice.
The three numbers that matter
Every factoring arrangement is built on three figures, and only the first is advertised:
The advance rate. The share of the invoice paid up front, typically 80 to 95 percent. The rest is held in reserve.
The factor fee. Charged against the face value of the invoice, per period it stays unpaid. This is the number that looks small and acts big. A fee quoted "per 30 days" doubles if your customer takes 60 days.
The reserve. Released to you when the customer pays, minus the fee. If the customer pays late, your reserve is held longer and the fee grows.
A worked example: a $50,000 invoice
Take a $50,000 invoice with an 85 percent advance and a factor fee of 2 percent per 30 days. Here is the full sequence:
- Day 1: the factor wires you $42,500 (85 percent of $50,000). The remaining $7,500 sits in reserve.
- Day 45: your customer pays the factor the full $50,000.
- The fee: 2 percent per 30 days over 45 days is 3 percent, or $1,500.
- The factor releases your reserve minus the fee: $7,500 - $1,500 = $6,000.
- You received $42,500 + $6,000 = $48,500 in total. The factoring cost you $1,500.
Now annualize it honestly. You effectively borrowed $42,500 for 45 days at a cost of $1,500. That is ($1,500 / $42,500) x (365 / 45), which works out to roughly 28.6 percent APR. The "2%" quote and the 28.6 percent reality are the same deal described two ways. This is why converting to an APR equivalent is not a nicety; it is the only way to compare factoring against anything else.
If the customer had paid on day 30, the same invoice would have cost $1,000. On day 90, it would have cost $3,000. The cost of factoring depends on how long your customers take to pay, which means factoring is most expensive precisely when your receivables are slowest.
Recourse vs. non-recourse: the risk question
Most factoring is recourse: if your customer never pays, you must buy the invoice back or replace it. Recourse is cheaper, and it means you have not truly transferred the credit risk. Non-recourse factoring shifts nonpayment risk to the factor, but the fee runs 0.5 to 1.5 percentage points higher, and it usually covers only customer insolvency or bankruptcy, not the far more common disputes over late or defective delivery. Read the recourse clause before you read anything else.
Spot vs. whole ledger
Spot factoring lets you sell individual invoices as needed, with no ongoing contract. It is flexible and usually more expensive per invoice. Whole ledger factoring requires you to factor all or most of your invoices on an ongoing basis, typically in exchange for better rates, since the factor gets predictable volume. If your cash flow problem is occasional, spot factoring is the tool. If the gap between delivery and payment is structural, whole ledger is usually cheaper over time.
The fees nobody puts in the headline
Before signing, ask about application or setup fees, monthly minimums (you pay the fee on a minimum volume whether you factor that much or not), wire transfer fees, and early termination fees. Any of these can quietly add a point or two to your effective cost. A clean quote answers all of them in writing.
Frequently asked questions
What is a typical invoice factoring fee?
Factor fees commonly run 1 to 5 percent of the invoice per 30 days, with advance rates of 80 to 95 percent. Your actual rate depends on your industry, invoice size, volume, and how creditworthy your customers are.
How do I calculate the true APR of a factoring deal?
Divide the total fee by the amount advanced, then multiply by 365 divided by the number of days the invoice was outstanding. That gives you the effective APR, which you can compare directly against a loan or credit line.
Is factoring a loan?
No. Factoring is a sale of your receivables. You take on no debt and pay no interest. That distinction matters for your balance sheet, but it does not make factoring cheap; a sale at a steep discount can cost more than a loan.
Does the fee stop growing once the invoice is old?
Usually not. Most contracts charge the fee per period the invoice remains unpaid, so a 60-day invoice costs roughly twice a 30-day invoice. Some contracts cap the fee or convert to a different schedule after 90 days. Check the language.
Run your own invoice through the math.
The Invoice Factoring Cost Calculator shows your true cost in dollars and the effective APR equivalent from your advance rate, factor fee, and payment timing.
Not financial advice: This article explains how factoring pricing works. Actual terms vary by provider, industry, and customer creditworthiness. Get written quotes and compare them as APRs before signing.