How Much Does Invoice Factoring Cost

One of the first questions business owners ask about invoice factoring is: how much does it actually cost? The answer depends on several factors, but understanding the fee structure helps you make an informed comparison.

The Core Factoring Fee: The Discount Rate

The primary cost of factoring is the "discount rate"—a percentage of the invoice face value. Rates typically range from 1% to 5% per month, depending on your industry, invoice volume, customer creditworthiness, and payment terms.

Advance Rates: What You Receive Upfront

• Freight/Trucking: 90–95%
• Staffing: 85–95%
• Manufacturing: 80–90%
• Construction: 70–85%
• General B2B Commercial: 80–90%

A Real-World Cost Example

A $100,000 invoice to a creditworthy manufacturer with net-60 terms at 2% monthly rate:

• Advance received: $85,000 (85% advance rate)
• Factoring fee: $4,000 (2% × 2 months)
• Remaining balance at payoff: $11,000
• Total cost: $4,000 (4% of invoice over 60 days)

Additional Fees to Watch

Always ask about setup fees ($0–$500), monthly minimums, wire transfer fees ($15–$35), and early termination penalties. Transparent factoring companies disclose all fees upfront.

Factoring vs. Alternatives

Merchant cash advances carry effective APRs of 40–150%. Bank lines of credit run 6–15% but take weeks to approve. For businesses that can't qualify for a bank line, factoring at 2–4% per month is often the most cost-effective option available.