Quick answer
Accounts receivable financing and invoice factoring typically cost 0.75%–3.5% per 30 days against advances of 80%–95% of invoice value. The headline discount rate is only part of the price: monthly minimums, wire and lockbox charges, and the way a funder counts days outstanding often move the all-in cost more than the rate itself.
Key takeaways
- Advance rates run 80%–95% and discount fees run 0.75%–3.5% per 30 days, on facilities from $25,000 to $25 million.
- Your customers' credit and how quickly they actually pay drive pricing more than your own balance sheet does.
- Ask whether fees accrue daily, per 15 days, or per full 30-day period — the same headline rate can cost twice as much.
- Minimums, wire, lockbox and termination charges belong in the comparison; convert them to dollars per year, not percentages.
- Bigger batches, faster-paying customers and a full-ledger commitment are the three most reliable ways to bring the rate down.
What does AR financing actually cost?
Receivables financing is priced in two parts. The advance rate decides how much cash reaches you on day one — usually 80% to 95% of the invoice face value — and the discount fee decides what you pay for the time the invoice stays outstanding. On our programs that fee runs 0.75% to 3% per 30 days for accounts receivable financing and 1% to 3.5% per 30 days for full-service invoice factoring, which includes credit checks and collections work. Freight programs are quoted differently again, usually as a flat 1.5% to 4% per load against an advance of up to 97%.
The rest of the invoice sits in reserve until your customer pays, at which point the reserve is released to you less the fee and any adjustments. That structure is why a high advance rate and a low total cost are not the same thing: the advance governs timing, the fee governs price. Facilities are written from $25,000 to $25 million, and pricing usually improves as a relationship seasons rather than at the moment of signature.
| Monthly volume financed | Typical advance rate | Typical fee per 30 days |
|---|---|---|
| Under $50,000 | 80%–85% | 2.5%–3.5% |
| $50,000–$250,000 | 85%–90% | 1.75%–2.75% |
| $250,000–$1 million | 88%–92% | 1.25%–2% |
| $1 million–$5 million | 90%–95% | 1%–1.5% |
| Over $5 million | 90%–95% | 0.75%–1.25% |
What drives your rate?
Underwriting prices the repayment source, and the repayment source is your customer. That single fact explains most of the spread between two quotes on otherwise similar businesses. A ledger of investment-grade buyers paying in 32 days prices very differently from a ledger of thinly capitalized buyers paying in 70 days, even if both companies invoice the same amount each month.
The second driver is operational: how much work each dollar of funding creates. Verification calls, document chasing, credit memos and short-pays all cost the funder time, and time is priced into the discount rate. Businesses that submit clean, verifiable invoices in batches are genuinely cheaper to serve, and the quote reflects it.
- Your customers' commercial credit and payment history — the largest single factor, because they are the ones who repay
- Average days-to-pay: an invoice settled in 28 days can cost half what the same invoice costs at 58 days
- Monthly volume and average invoice size, since fixed verification work is cheaper spread across larger invoices
- Dilution — credit memos, short-pays, returns and rebates measured against invoiced sales
- Recourse versus non-recourse, because the funder prices the credit risk it keeps
- Industry mechanics such as progress billing, retainage, consignment and pay-when-paid terms, which add collection uncertainty
- Customer concentration: one buyer at 60% of the ledger is priced differently from ten buyers at 10% each
- Whether you commit a full ledger or pick invoices one at a time — spot factoring consistently costs more
What fees should I ask about?
The discount rate is the number on the term sheet; the fee schedule is the number on your bank statement. Most disputes about the cost of factoring are not really about the rate at all — they are about charges the business did not model, usually a monthly minimum in a slow quarter or a termination clause discovered at renewal.
Ask for the complete schedule as a written exhibit to the agreement before you sign, and ask for it in the same format from every funder you are considering. A quote that lists one percentage and nothing else is incomplete, not cheap.
| Fee | How it is usually charged | What to ask |
|---|---|---|
| Discount or factoring fee | A percentage of invoice face value for each period the invoice is outstanding | Is it prorated daily, or charged in full 15- or 30-day increments? |
| Application or due diligence | One time at onboarding, covering UCC searches, background checks and lien filings | Is any part of it refundable if the file is declined? |
| ACH or wire transfer | Per funding event | Is ACH free, and how many wires are included each month? |
| Lockbox or account maintenance | A flat monthly charge for the controlled account that receives customer payments | Who owns the account, and who reconciles unidentified receipts? |
| Monthly minimum | A volume or fee floor; the shortfall is billed if you fund less than the agreed amount | What happens in a seasonal trough or when a large customer pauses? |
| Misdirected payment | Applied when a customer pays you directly instead of the lockbox | How many days do I have to forward the funds before it applies? |
| Aging or extended-term surcharge | An extra percentage once an invoice passes 60, 90 or 120 days | At what day does it start, and at what day is the invoice charged back? |
| Termination or early termination | A notice period plus a percentage of the facility or a number of months of minimums | What is the notice window, and what does a clean exit cost in month six? |
How do funders count the days?
This is the detail that most often separates two quotes that look identical. Some funders prorate the discount fee daily. Others charge in 15-day increments, and others charge a full period the moment an invoice crosses into day 31. If your customers average 45 days, a rate charged in full 30-day blocks is effectively double the headline number, while a prorated rate is only half as much again.
Model both structures against your real aging report rather than against net terms. Net 30 on the invoice means very little if the ledger says the money arrives on day 47.
A $100,000 invoice at a 90% advance and 1.5% per 30 days, where the customer pays on day 45 and the funder charges in full 30-day increments.
| Invoice amount | $100,000 |
|---|---|
| Advance rate | 90% |
| Paid to you upfront | $90,000 |
| Days outstanding | 45 — billed as two 30-day periods |
| Discount fee at 1.5% x 2 periods | $3,000 |
| Wire fee on the advance | $25 |
| Reserve released on payment | $6,975 |
You receive $96,975 of the $100,000 invoice at a total cost of $3,025. Had the customer paid on day 30, the discount fee would have been $1,500 and the total cost $1,525 — the extra fifteen days doubled the fee.
What does a full year of financing cost?
Per-invoice math is useful for a single decision and misleading as a budget. Fixed charges are invisible on one invoice and obvious across twelve months, and they are the reason an effective cost almost always sits above the quoted discount rate. Build the annual number before you sign, using your own expected volume rather than the volume the term sheet assumes.
A business financing $200,000 of invoices a month at 1.25% per 30 days, with customers paying inside 30 days, funding roughly 20 invoices a month by wire.
| Invoices financed per month | $200,000 |
|---|---|
| Annual financed volume | $2,400,000 |
| Discount fees at 1.25% per 30 days | $30,000 |
| Wire fees, 240 fundings at $25 | $6,000 |
| Lockbox and account maintenance at $150 a month | $1,800 |
| One-time due diligence fee | $750 |
| Total cost for the year | $38,550 |
The all-in cost is $38,550 on $2,400,000 of invoices — 1.61% of volume against a headline rate of 1.25%. Moving those 240 fundings to free ACH would save $6,000 and bring the effective cost to 1.36%.
How do I compare two term sheets like for like?
Two offers are only comparable once they are expressed as the same thing: total dollars of cost over a year, on your own volume, at your own average days-to-pay, net of the cash each facility actually releases. Reducing both to a single effective percentage after that is useful. Doing it before is how businesses end up with the more expensive facility.
- 1Normalize the rate basis. Restate both quotes as cost per $100,000 of invoice at your real average days-to-pay, applying each funder's own increment rule — daily, 15-day or 30-day.
- 2Annualize every fixed charge. Add minimums, lockbox, maintenance, filing and per-funding charges for twelve months, then divide by your expected annual volume so they appear in the percentage.
- 3Price the advance gap. A five-point difference in advance rate on $200,000 a month is $10,000 of cash you wait for. Value it against what that working capital does in your business.
- 4Model the exit. Calculate the cost of leaving in month six and at the first renewal, including notice periods and any percentage-of-facility termination charge.
- 5Read the aging and chargeback clauses. Find the day a surcharge begins and the day an unpaid invoice is charged back to you. Under recourse, that date is a cash flow event you need to plan for.
- 6Ask for a sample settlement report. Request a redacted statement showing how one real invoice moved from advance to reserve release. It shows the fee mechanics more honestly than any summary.
How can I lower my effective cost?
Most of the available saving is operational rather than negotiated. Funders price uncertainty, so reducing uncertainty reduces price — and unlike a rate negotiation, it works at any facility size. The second lever is timing: fees accrue by the day, so anything that shortens the gap between invoicing and collection is a direct discount.
- Submit invoices in batches instead of one at a time, so per-funding charges fall away
- Finance your fastest-paying customers first and keep chronic 75-day payers outside the facility where cash flow allows
- Attack dilution at source — accurate pricing, matched purchase orders and signed delivery evidence cut short-pays
- Trade a full-ledger commitment on named customers for a lower discount rate
- Use ACH rather than wire where the timing permits, and ask for a minimum waiver during your seasonal trough
- Invoice the day work is accepted rather than at month end; a week of billing lag is a week of fee
- Renegotiate at renewal with six to twelve months of clean settlement history, which moves both the advance rate and the fee
When is the price telling you to use a different tool?
Receivables financing is priced for speed, flexibility and credit-light approval, and it is more expensive than a bank line for a business that can get one. If you have two years of profitable, audited financials, modest leverage and reliable covenants, a bank revolver or an asset-based line will almost always cost less, and the honest answer is to use it.
The comparison that genuinely favors factoring is the one against short-term alternatives: merchant cash advances repaid by fixed daily debits, or the cost of turning down work you cannot fund. Factoring is repaid when your customer pays rather than on a fixed schedule, which is why it tends to survive a slow month that a daily-debit product would not. Price it against the opportunity, not against a rate you cannot qualify for.
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Written and reviewed by the National Invoice Factoring funding team — specialists in receivables and trade finance since 2009.
