If you’re considering invoice factoring, one of the first questions you’ll ask is: “What does invoice factoring really cost?”
It’s a smart question. While factoring is one of the fastest and most flexible ways to improve cash flow, understanding the full cost structure is essential before choosing a provider.
In this guide, we break down:
- How invoice factoring fees work
- Typical factoring rates
- Hidden costs to watch for
- Recourse vs. non-recourse pricing differences
- How to calculate your true cost
- What makes factoring worth it
If you’re comparing options, this article will help you make an informed, confident decision.
What Is the True Cost of Invoice Factoring?
The true cost of invoice factoring includes:
- Factoring fee (discount rate)
- Advance rate structure
- Additional service or transaction fees (if any)
- Contract terms and minimums
Unlike traditional loans, factoring is not based on interest rates. Instead, you sell your invoices at a discount in exchange for immediate cash.
For a full overview of how factoring works, see our guide to invoice factoring on www.ezinvoicefactoring.com.
1. Factoring Fees (Discount Rates)
The factoring fee, also called the discount rate, is the primary cost.
This fee is typically expressed as a percentage of the invoice value.
Typical Invoice Factoring Rates
- 0.5% to 5% per 30 days
- Can vary based on:
- Industry
- Invoice volume
- Customer credit quality
- Average payment terms
- Recourse vs. non-recourse structure
Example:
- Invoice amount: $100,000
- Advance rate: 90%
- Factoring fee: 2% per 30 days
- Customer pays in 30 days
Cost: $2,000
You receive:
- $90,000 upfront
- $8,000 rebate after payment
- $2,000 fee retained by the factoring company
If the invoice takes 60 days to pay, the fee may double depending on the agreement.
2. Advance Rate: How Much You Get Upfront
The advance rate is the percentage of the invoice paid immediately.
Typical advance rates:
- 80% to 95%
Higher advance rates improve cash flow but do not necessarily mean higher cost. The factoring fee determines total expense.
Example:
| Invoice | Advance (90%) | Reserve (10%) |
|---|---|---|
| $50,000 | $45,000 | $5,000 |
Once your customer pays, you receive the reserve minus fees.
3. Recourse vs. Non-Recourse Factoring Costs
Recourse Factoring
Lower fees
You agree to buy back invoices if the customer does not pay.
Non-Recourse Factoring
Higher fees
The factoring company assumes credit risk (in cases of customer insolvency).
Non-recourse typically costs 0.5%–1.5% more than recourse.
At EZ Invoice Factoring, we help businesses evaluate which option makes financial sense based on their customer base.
4. Additional Fees to Watch For
Not all factoring companies are structured the same. Some may include additional charges such as:
- Application fees
- Due diligence fees
- Wire fees
- Monthly minimum volume fees
- Early termination penalties
- Credit check fees
- ACH fees
- Lockbox fees
Transparent factoring companies disclose all costs upfront.
Pro Tip: Always ask for a full fee schedule in writing before signing an agreement.
5. How to Calculate the Real Cost of Factoring
Here’s a simple way to evaluate true cost:
Step 1: Determine Your Average Days to Payment
Are customers paying in 30, 45, or 60 days?
Step 2: Multiply the Fee by Time Outstanding
If your rate is 2% per 30 days:
- 30 days = 2%
- 60 days = 4%
- 45 days = 3%
Step 3: Compare Cost vs. Opportunity
Ask:
- Will faster cash allow you to take on more contracts?
- Can you capture early-pay vendor discounts?
- Can you avoid payroll stress?
- Will you eliminate high-interest short-term debt?
In many cases, the ROI from growth and stability outweighs the factoring fee.
Is Invoice Factoring Expensive?
Factoring can appear more expensive than a traditional bank loan when viewed strictly as a percentage.
However, it offers:
- No new debt
- No long-term liabilities
- No monthly loan payments
- No collateral beyond invoices
- Fast approvals
- Funding in 24–48 hours
For growing businesses in industries like trucking, staffing, construction, oil & gas, and manufacturing, factoring is often the most practical working capital solution.
Industry-Specific Cost Considerations
Different industries have different risk profiles:
Trucking & Freight
- Typically lower rates
- High invoice volume
- Strong debtor diversity
Staffing & Payroll Funding
- Moderate rates
- High funding frequency
- Payroll-intensive operations
Construction
- Slightly higher rates
- Longer payment cycles
- Progress billing complexity
Oil & Gas / Government Contracting
- Rates depend heavily on contract quality and payor strength
At EZ Invoice Factoring, we tailor programs based on industry-specific risk and cash flow needs.
What Impacts Your Factoring Rate?
Several factors influence your rate:
- Monthly invoice volume
- Average invoice size
- Customer credit strength
- Time in business
- Concentration risk (single large customer vs. diversified base)
- Length of contract
- Type of factoring (spot vs. whole ledger)
The stronger your receivables portfolio, the better your pricing.
Frequently Asked Questions (FAQ)
What is the average invoice factoring fee?
Most businesses pay between 1% and 4% per 30 days, depending on industry and risk profile.
Are there hidden fees in factoring?
Reputable factoring companies disclose all fees upfront. Always request a written fee schedule.
Is factoring cheaper than a loan?
It depends. Loans may have lower nominal rates but are harder to qualify for and add debt. Factoring provides speed and flexibility.
Does factoring hurt my customer relationships?
Professional factoring companies manage collections respectfully and professionally.
The Real Value of Invoice Factoring
The true cost of factoring isn’t just the percentage fee — it’s what that fee enables:
- Predictable cash flow
- Faster growth
- On-time payroll
- Stronger vendor relationships
- Ability to accept larger contracts
- Financial stability without debt
For many businesses, factoring is not an expense — it’s a growth tool.
Why Choose EZ Invoice Factoring?
At EZ Invoice Factoring, we believe in:
- Transparent pricing
- No hidden fees
- Fast approvals
- Same-day funding
- Flexible contracts
- Dedicated account support
We specialize in trucking, staffing, construction, oil & gas, manufacturing, government contracting, healthcare, janitorial, and security industries.
Our goal is simple: Make factoring easy, affordable, and predictable.
Get a Free Factoring Quote
Want to know exactly what factoring would cost for your business?
Contact EZ Invoice Factoring today for a free, no-obligation quote. We’ll review your receivables and provide clear pricing with no surprises.
Improve cash flow. Grow with confidence. Get funded fast.
