The rate they quoted you is not what factoring costs.
A rate quoted per 30 days, on customers who pay in 55, charged against an advance that is only 90% of the invoice, plus fees that never appear in the pitch. Work out what you are actually paying — then decide whether to move.
Three numbers decide what factoring costs you.
The advance rate
The share of the invoice you get at funding. The rest is reserve — your money, held by the factor until your customer pays. A lower advance rate raises your real cost even if the discount rate looks identical.
The fee period
A discount rate is charged per period, not per year. Whether that period is 15, 30 or 45 days, and what happens when a customer runs past it, is where a modest-looking rate becomes an expensive one.
Everything else
Wire and ACH fees, invoice upload fees, monthly minimums you did not hit, service charges, lockbox fees, credit-check fees, termination fees. Individually small. Together, often more than the discount rate.
We used to sit on the other side of this desk.
Blue Collar CFOs publishes this site. Our founder, Mark Peterson, came up on the factoring and asset-based lending side — underwriting these facilities, funding them, monitoring them and, when they went wrong, recovering on them.
That is the whole reason for this page. We know which line in the agreement costs you money, because we used to write it. We are not going to pretend factoring is bad — used correctly it is the cheapest working capital an asset-heavy business can get. Used carelessly it quietly takes a third of your margin.
Our clients get to see what we see. That is the point.
Straight answers.
What is a good factoring rate?
There is no single number, and anyone who quotes you one before seeing your invoices is guessing. Pricing is driven by your monthly volume, who your customers are and how they pay, your average invoice size, your days-to-pay, whether the facility is recourse or non-recourse, and how long you commit for. The right question is not the headline rate but the all-in cost per dollar advanced, which is what the calculator on this site works out.
Is factoring the same as a loan?
No. You are selling your receivables at a discount, not borrowing against them. That matters legally and practically: the factor takes a first-position lien on your A/R, credit-approves your customers, and in a recourse facility you buy back invoices that do not pay. It usually does not appear as debt on your balance sheet, which is exactly why some owners underestimate what it is costing them.
Why is my effective rate so much higher than the quoted rate?
Because the quoted rate is per period, not per year, and because the fees outside the discount rate are where the money is. A rate quoted per 30 days on customers who pay in 55 days is being charged twice. Add wire fees, minimum monthly volume shortfalls, invoice upload fees, monthly service charges and the reserve you have not been paid yet, and the all-in number is frequently several times the headline.
What is the reserve?
The part of the invoice you do not get at funding. If the advance rate is 90%, the other 10% is held back and released when your customer pays, less fees. That reserve is your money sitting with the factor, and how quickly it gets released matters as much as the rate does.
Recourse or non-recourse?
Recourse is cheaper and means you carry the credit risk — if the customer does not pay, you buy the invoice back. Non-recourse costs more and only covers credit failure, usually narrowly defined as the customer going insolvent. Non-recourse does not cover a dispute, a short-pay, or a customer who simply refuses. Read the definition, not the label.
Can I get out of a factoring agreement?
That depends entirely on the contract, and it is where most of the pain lives. Look for the initial term, the auto-renewal clause, the notice window, the early termination fee and the minimum volume commitment. Some agreements renew for a year if you miss a 30 or 60-day notice window. This is covered in detail on the contract traps page.
Who publishes this site?
Blue Collar CFOs, a fractional CFO and buy-side M&A firm in Caldwell, Idaho working nationwide with trucking, construction, excavation, oil & gas and manufacturing companies. Our founder came up on the factoring and ABL side, which is why this site exists: we know where the cost is buried because we used to be on the other side of it.
Find out what a good rate actually looks like for you.
No obligation. We will tell you where your current pricing sits and whether it is worth moving.