Definition
The percentage of an invoice's value a funder pays upfront.
Why it matters
Typical advance rates range from 80% to 95% for invoices and up to 97% for freight bills.
Where it shows up in a deal
The advance rate is stated in the term sheet and then repeated, often at a different number, on each customer schedule. Underwriting sets it per account after reviewing that buyer's credit, payment record and the deduction history on their invoices, which is why one ledger routinely carries several rates at once.
What it affects
- It governs how much cash lands on day one; it says nothing about what the facility costs.
- On construction, medical and progress-billed work it applies to an adjusted eligible amount, not face value.
- Dilution history is the strongest single driver of where it is set and whether it improves.
- A rate set at onboarding is reviewable in both directions as collections data accumulates.
A worked example
A $250,000 progress billing carries $25,000 of retainage, which is excluded. An 85% advance applies to the $225,000 of eligible value and funds $191,250 - 76.5% of the invoice as billed, not 85%.
The common mistake
Related terms
- ReserveThe portion of an invoice held back by a factor until the customer pays.
- DilutionThe reduction in invoice value from credits, returns, discounts or disputes.
- Eligible ReceivablesInvoices that meet a funder's criteria for advancing.
- RetainageA percentage of a construction payment held until project completion.
Questions about how advance rate affects your facility?
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