How Much Does Invoice Factoring Cost? Breaking Down Fees & Rates

One of the first questions most companies ask is simple:

How much does invoice factoring cost?

The answer depends on several key variables, including invoice terms, customer credit, and overall volume. Below, we break down factoring fees, rates, and total cost.

What Is Invoice Factoring? A Quick Refresher

Invoice factoring is a simple concept. A business sells its unpaid invoices to a factoring company in exchange for an immediate cash advance.

Here’s how it works:

• You submit your customer’s invoice to the factoring company
• The factoring company advances a percentage of the invoice value, typically between 90% and 95%
• Your customer pays the invoice directly to the factoring company based on agreed-upon terms
• Once payment is received, the factoring company sends you the remaining balance minus its fee

What Is the Advance Rate in Invoice Factoring?

The advance rate is the amount of cash a factoring company provides upfront before the invoice is paid. Advance rates generally range from 70% to 95%, depending on factors such as customer credit strength, payment terms, industry risk, and invoice quality. Strong, reliable customers and shorter payment terms usually qualify for higher advance rates.

What Are Invoice Factoring Fees?

The factoring fee, also known as the discount rate, is the primary cost of invoice factoring. Fees typically range from 1% to 5% per month and are charged as a percentage of the invoice amount.

Several variables factor into this fee:

1. How long it takes your customers to pay
   Time is one of the biggest drivers of cost. A Net 30 invoice generally carries a lower fee than a Net 60 or Net 90 invoice because the factoring company’s funds are tied up for a shorter period.
2. The creditworthiness of your customers
   Factoring is based largely on your customer’s ability to pay, not your own credit. Factoring companies evaluate customer payment history, financial stability, and consistency. Stronger customers typically result in better rates and higher advance percentages.
3. Invoice amount and monthly volume
   Businesses that factor consistently, submit higher invoice volumes, and maintain predictable cash flow often qualify for reduced fees. One-time or low-volume factoring tends to carry higher pricing.

Common Invoice Factoring Costs to Know

A transparent factoring company should clearly explain all fees upfront. Common charges may include:

• Discount Fee (core factoring cost)
• Additional Time Fees if invoices take longer to pay
• Service or Maintenance Fees (sometimes tied to minimums)
• Setup or Origination Fees (not always required)
• Wire or ACH Fees for fund transfers
• Credit Check Fees for evaluating customers

Recourse vs Non-Recourse Factoring: Cost Differences

Recourse factoring means your business is ultimately responsible if your customer does not pay the invoice. If non-payment occurs, you may need to repurchase the invoice or replace it with another valid one. Because the factoring company assumes less risk, recourse factoring generally comes with lower fees and higher advance rates.

Non-recourse factoring shifts the risk of customer credit failure to the factoring company. If a customer becomes insolvent or goes out of business, the factor absorbs the loss. Since this structure carries more risk for the factor, non-recourse agreements usually involve higher fees, lower advance rates, and more selective customer approval. Think of non-recourse factoring as added protection rather than guaranteed payment in all situations.

Contract Terms That Affect Invoice Factoring Cost

Beyond rates and fees, contract terms can significantly impact the total cost of invoice factoring. Some factoring companies require a minimum monthly volume, and failing to meet it may result in a shortfall or service fees. Contract length also matters, as longer agreements can limit flexibility even if rates appear lower. Early termination fees may apply if you exit before the contract ends, adding unexpected costs. In addition, many agreements require 30 to 90 days’ written notice to cancel, and missing that window can trigger automatic renewal. Understanding these terms upfront helps ensure the factoring arrangement aligns with your cash flow needs.

Factoring vs Traditional Financing: Cost Comparison

Factoring is not a traditional loan but rather a way to turn unpaid invoices into immediate working capital, which makes its cost structure different from that of bank financing. While invoice factoring fees may appear higher than the interest rate on a conventional bank loan, factoring is often easier to qualify for because approval is based largely on your customers’ ability to pay, not your business’s credit history or collateral.

Is Invoice Factoring Worth the Cost?

Invoice factoring is often worth the cost because it provides immediate cash flow without adding debt and scales naturally with your sales. It helps businesses stay stable during growth, seasonal fluctuations, or long customer payment cycles, while offering faster access to working capital than traditional bank financing. Many factoring programs also include value-added services such as complimentary credit checks to flag high-risk customers, professional collection services, and dedicated account managers. For companies that don’t qualify for bank loans or need flexibility, factoring can be a reliable and strategic financing solution.

Choosing the Right Factoring Partner

Factoring costs can vary widely, so it’s important to research providers, ask for referrals, and carefully review agreements before signing.

Scale Funding has helped businesses access working capital for over 30 years, with deep expertise in trucking, staffing, oil and gas, telecommunications, and more.

Unlike many factoring companies, Scale Funding offers:

• Flexible month-to-month contracts
• The power to choose which invoices to factor and when
• Transparent pricing with no hidden fine print
• A team that walks you through every agreement before you sign
• Backed by Scale Bank – We know the unique challenges companies face

Scale Funding is built on honesty, clarity, and long-term partnerships. Click here to learn more about Scale Funding.

Invoice Factoring Cost FAQ

How much do factoring companies charge?

Most factoring companies charge between 1% and 5% per month, depending on customer credit, invoice terms, and volume.

Is invoice factoring expensive?

Factoring may cost more than a traditional bank loan, but it offers faster approval, fewer restrictions, and immediate access to cash without taking on debt.

Are there hidden fees with invoice factoring?

Some providers charge extra fees for setup, wires, monthly minimums, or early termination. Always ask for a full breakdown of total costs.

Can I choose which invoices to factor?

With the right partner, yes. Scale Funding allows businesses to factor only the invoices they choose when they need funding.

What advance rate will I receive?

Advance rates typically range from 70% to 95%, based largely on the credit strength of your customers and payment terms.

Is factoring a good option if I can’t get a bank loan?

Yes. Factoring is a strong alternative financing option for companies that are growing quickly, have limited credit history, or are considered unbankable by traditional lenders.