How factoring is actually priced.

Factoring pricing has five moving parts. Most owners negotiate only the first one, which is why most owners overpay.

1. The discount rate

The headline number, expressed as a percentage of the invoice face value, charged per fee period. Two facilities quoting the same discount rate can differ enormously in cost depending on the period length and what happens past it.

What drives it: monthly volume (more volume, better pricing), the credit quality of your customers rather than you, average invoice size, your industry, your customers' average days to pay, and whether the facility is recourse or non-recourse.

Negotiable? Yes, particularly at volume, and particularly at renewal when you have payment history.

2. The advance rate

The percentage of the invoice paid to you at funding. The remainder is the reserve. Your real cost per dollar of usable cash is the fee divided by the amount advanced, not the invoice face value — so a lower advance rate raises your effective cost even when the discount rate does not change.

Negotiable? Often, and it is frequently the easier win. Moving an advance rate up a few points can beat shaving the discount rate.

3. The fee period and what happens past it

Discount rates are charged per period — commonly per 15 or per 30 days. The question that matters: what happens on day 31, or day 61? Some facilities step the fee up incrementally by day. Some charge a whole additional period the moment you cross the line. On a customer base that pays in 45 to 55 days, that single contract term can change your annual cost dramatically.

Ask directly: "Show me the fee on a $10,000 invoice that pays on day 32, day 46 and day 61."

4. The fees outside the rate

• Monthly minimum volume — if you factor less than committed, you pay the shortfall anyway. This is the single most common surprise.
• Monthly service or maintenance fee — a flat charge regardless of volume.
• Wire and ACH fees — per funding. If you fund daily, this compounds fast.
• Invoice or schedule upload fees — per invoice or per batch.
• Credit check fees — per new customer approved.
• Lockbox or postage fees, same-day funding premiums, reserve release fees, audit fees, UCC filing and termination fees.

Ask for a complete schedule of fees as a document. If a salesperson will not put every fee in writing before you sign, that is your answer about the relationship.

5. Recourse versus non-recourse

Recourse: you buy back invoices your customer does not pay. Cheaper, and you carry the credit risk. Non-recourse: the factor absorbs credit losses — but read how narrowly "credit loss" is defined. In most agreements it means the customer became formally insolvent. It almost never covers a dispute, a short-pay, a service complaint, or a customer who simply will not pay. Owners routinely pay a premium for coverage that does not apply to the way they actually lose money.

Working out your real number

Take the total of every fee charged on an invoice. Divide by the cash you actually received. Annualize it by the days from funding to payment. That is your effective annualized cost, and it is the only number that lets you compare a factoring facility against a line of credit or an ABL facility.

The calculator does that arithmetic for you.

What a factor is looking at in you

It helps to know what you are being priced on. A factoring underwriter is generally looking at: whether your business is B2B, your monthly eligible receivables volume, invoice concentration across customers, cross-aging (how much of your ledger is past due), invoice ageing limits, whether an existing lender already holds a lien on your A/R, and whether they can take first position. Fix the fixable ones before you shop, and you will be quoted better.