Last reviewed 13 August 2026
Turn a factoring quote into the number that actually matters: the effective annual rate you are paying for the cash, and what the same money would cost you anywhere else.
Invoice factoring costs 1 to 5 percent of the invoice, which is 15 to 70 percent APR once you annualize it. Divide the total fees by the cash the factor actually advances, then scale that over the days until your customer pays.
Effective APR = (Total fees / Cash advanced) x (365 / Days until paid)
Example: a $50,000 invoice, 3 percent fee, 90 percent advance, customer pays in 45 days. The fee is $1,500 on $45,000 of cash: (1,500 / 45,000) x (365 / 45) = 27.0% APR.
Enter the deal as the factor described it. The advance rate matters as much as the fee.
Enter an invoice amount above zero.
Enter at least one day.
Enter an advance rate between 1 and 100.
Two structures are common, and they price very differently on a slow payer.
Enter a fee between 0 and 50 percent.
Enter a rate above zero.
Part periods are charged in full, which is how most tiered facilities are written.
Factoring only looks expensive against something. These two set what it is measured against.
The same funding gap, priced three ways. The cheapest row is highlighted.
| Option | Cost for this invoice | Annual cost at your volume | What you give up |
|---|---|---|---|
| Factor the invoice | -- | -- | A fixed slice of every invoice, and the customer relationship |
| Draw on the credit line | -- | -- | Facility headroom, and you carry the credit risk |
| Wait to be paid | -- | -- | Nothing in fees, but the cash is idle for the whole period |
Waiting costs your cost of capital on the cash you have not been paid. Credit line cost is interest on the same advance for the same days.
Key takeaways
Effective annual rate
27.0%
Fee on this invoice $1,500, cash today $45,000
Three times the cost of a typical credit line.
Paidnice collects faster so you need the factoring line less often.
No card required.
Factoring is priced in a unit nobody else in finance uses: a flat percentage of the invoice, charged once. That is why it feels cheap and is not.
A bank quotes you an annual rate. A factor quotes you 3 percent. Those two numbers are not comparable, and the gap between them is the whole commercial model.
Three percent of an invoice settled in 45 days is 27 percent a year. Settled in 30 days it is 41 percent a year. The faster your customers pay, the more expensive factoring gets, which is the reverse of how the rate card reads.
The headline understates the cost for a second reason. You do not receive the invoice value, you receive the advance, typically 70 to 95 percent of face. The rest is held as a reserve until your customer pays.
So the fee is charged on money you never touched. Dividing the fee by the advance rather than by the face value is the one correction that turns a factoring quote into a comparable interest rate.
The quick version. Fee divided by the cash you actually got, times 365 divided by the days until payment. A $1,500 fee on $45,000 for 45 days is 27 percent a year.
Each input in Effective APR = (Total fees / Cash advanced) x (365 / Days until paid) is a place where a quote gets flattered.
Add every charge that attaches to the invoice: the discount fee, wire or ACH fees, credit checks, upload charges, and a share of any monthly minimum you will not otherwise hit. On a small invoice those extras can outweigh the discount fee.
Multiply the invoice by the advance rate. At 90 percent on a $50,000 invoice you are borrowing $45,000, not $50,000. Dividing by face value understates the rate by roughly the advance discount, and every factor quotes against face value.
The clock runs until the customer settles with the factor, not until your stated due date. If you invoice on net 30 and your customers pay on day 52, use 52. Using your terms instead is the most common way this calculation comes out wrong.
Scaling to a year makes the number comparable with a loan, an overdraft or a card rate. It does not mean you pay that much. It means borrowing at this price for a year would cost that much.
A distribution business factors a $50,000 invoice. The factor quotes 3 percent, advances 90 percent, and the customer settles on day 45.
The same $45,000 drawn on a 9 percent credit line for 45 days costs 45,000 x 0.09 x 45 / 365 = $499. Factoring this invoice costs three times as much as borrowing against it.
One cost the formula leaves out: the $3,500 reserve is your money, held by someone else, earning you nothing for 45 days.
Read your APR against the cheapest funding you could actually get approved for, not the cheapest funding that exists.
If no bank will lend to you this quarter, a 40 percent APR that keeps the business trading is a different decision from a 40 percent APR sitting next to an unused overdraft.
Competitive
Under 15% APR
Priced like asset finance. Usually large invoices or long terms.
Normal
15 to 25% APR
The typical range. Worth doing if the cash earns more than that.
Expensive
25 to 40% APR
Above most card rates. Get a second quote before signing.
Emergency pricing
Over 40% APR
Only defensible as a short bridge with a dated exit plan.
Then run one more test against your margin. If your gross margin is 22 percent and factoring costs 3 percent of every invoice, factoring takes roughly one seventh of the margin on every job you fund.
Fees run from 2 percent in trucking and manufacturing to 8 percent in retail. Your customers' credit quality and how easily the invoice can be verified set the price, which is why sectors differ so much.
The APR column converts each range at a 90 percent advance and typical settlement days for that sector.
| Industry | Fee range | Typical terms | Effective APR | Why it prices there |
|---|---|---|---|---|
| Trucking and transport | 2 to 4% | 30 days | 27 to 54% | High volume, short cycles, freight bills are easy to verify |
| Manufacturing | 2 to 3% | 30 to 60 days | 18 to 27% | Larger invoices, established buyers, lower perceived risk |
| Staffing and recruitment | 3 to 5% | 15 to 30 days | 41 to 68% | Weekly payroll pressure gives the factor pricing power |
| Healthcare | 2 to 4% | 30 to 90 days | 14 to 27% | Payer mix and claim adjustments slow settlement |
| Construction | 3 to 6% | 30 to 90 days | 20 to 41% | Retentions, progress claims and lien risk price the deal up |
| Retail and consumer goods | 4 to 8% | 30 to 45 days | 36 to 72% | Chargebacks, returns and dilution raise the risk premium |
Fee ranges compiled from published factor rate cards and publicly advertised quotes, reviewed August 2026. APR figures are calculated from those ranges at a 90 percent advance, not sourced. Treat the whole table as orientation, not as a quote. For background on how small firms use receivables finance, see the Federal Reserve Banks Small Business Credit Survey and the SBA guide to alternative funding.
Two quotes at 3 percent can differ by 20 points of APR, because the percentage means different things depending on the structure. Ask which of these three you are looking at before you compare anything.
| Structure | How it is charged | Who it favors |
|---|---|---|
| Flat discount fee | One percentage of face value, charged once, whatever day the invoice settles | You, if your customers are slow. The factor, if they are fast |
| Fee per period | A rate for each 10, 15 or 30 day block, with part periods charged in full | The factor. A 1 percent per 10 days deal on a day 45 payer is 5 percent, not 4.5 |
| Tiered or prime plus | A base rate plus a margin over prime, accrued daily on the outstanding advance | You, usually. It is the closest thing to honest interest, and the rarest offer |
Part periods are charged in full. On a fee per period deal, a customer who pays on day 31 of a 30 day block costs you a whole extra period. One day of slippage on a 1 percent per 10 days facility adds a full percentage point to the invoice.
The discount fee is the part you negotiate. These are the parts that quietly move the real number.
Factoring buys time. Collecting faster removes the need to buy any, and the two are nowhere near each other on price.
Take the default example: $200,000 factored a month, $2.4 million a year, at an effective 3 percent. That costs $72,000 every year, forever.
Now cut 20 days off the time the same customers take to pay. Daily credit sales are 2,400,000 / 365 = $6,575, so 20 days releases $131,507 of cash, once, permanently, for nothing.
Factoring is a recurring charge against margin that never ends. Faster collection is a one time release that stays released while the behavior holds. By year three the business that fixed collections is $216,000 ahead and still holding the cash.
Check the gap before you fund it. Run your days sales outstanding first. If your DSO is 20 or more days beyond your stated terms, a large part of the cash you are about to buy is cash you already earned and have not chased.
The gap between your terms and your DSO is usually process, not customer behavior. Invoices go out late, reminders go out when someone remembers, and disputes sit unowned.
That work is repetitive, so it automates. Paidnice is not a lender and does not fund invoices. It works the receivables side: automated email and SMS reminders fire before and after the due date, customer statements go out on a schedule, AR reporting keeps the aging picture visible, and late fees give the conversation leverage when a customer is choosing to pay you last.
Factoring is expensive money, and expensive money is sometimes the right money. It earns its price in four situations.
The test is whether you can name the day you stop. Factoring as a bridge with a dated exit is a reasonable financial decision. Factoring as a permanent operating model hands a fixed percentage of every invoice you ever raise to someone else.
Collecting twenty days sooner costs nothing and frees the same cash. Paidnice chases overdue invoices for you in Xero and QuickBooks.
See automated remindersPut the invoice amount in A1, the fee percent in B1, the advance percent in C1, days until payment in D1 and other fees in E1.
=(A1*B1/100)+E1=A1*C1/100=((A1*B1/100+E1)/(A1*C1/100))*(365/D1), formatted as a percentage=B1*CEILING(D1/F1,1)=(A1*C1/100)*(G1/100)*(D1/365)=H1*12*((A1*B1/100+E1)/A1)Watch the denominator. If you divide fees by the invoice value instead of the advance, the APR comes out roughly 10 percent too low at a 90 percent advance, and 25 percent too low at an 80 percent advance. Every factor's own illustration uses face value.
Expressed as annual rates, the funding options rank in a stable order. What changes between businesses is which of them you can actually access.
| Option | Typical cost | Speed | Who it underwrites |
|---|---|---|---|
| Collect on time | Nothing | Weeks to change | Nobody |
| Early payment discount | 7 to 56% APR depending on terms | Immediate | Nobody |
| Bank line of credit | 7 to 15% APR | 2 to 8 weeks | You |
| Invoice discounting | 10 to 25% APR | 1 to 3 weeks | You and the ledger |
| Invoice factoring | 15 to 70% APR | 24 to 48 hours | Your customer |
| Merchant cash advance | 40 to 200% APR | 24 hours | Your card takings |
Speed is the product you are buying. The list gets faster and easier to qualify for as it goes down, and price is what pays for both.
Before you buy speed, check what the delay is made of with the DSO calculator, the AR aging analysis and the cash conversion cycle calculator. Funding a gap you could have closed is the most expensive mistake on this page.
These six get the cost wrong, and most of them get it wrong in the factor's favor.
Invoice factoring costs 1 to 5 percent of the invoice face value for most businesses, and 4 to 8 percent in higher risk categories such as retail. That headline rate is charged once per invoice, not per year. Converted to an annual rate it usually lands between 15 and 70 percent, because you are only borrowing the money for 30 to 60 days.
Take the total fees you pay, divide by the cash the factor actually advances, then annualize over the days until your customer pays. The formula is Effective APR = (Total fees / Cash advanced) x (365 / Days until paid). A 3 percent fee on a 50,000 dollar invoice with a 90 percent advance, paid in 45 days, is 1,500 dollars on 45,000 dollars for 45 days, which is 27 percent APR.
Factoring companies charge a discount fee of 1 to 5 percent per invoice, and most add a set of smaller charges on top. Expect an application fee of 0 to 500 dollars, due diligence of 100 to 1,000 dollars, wire fees of 15 to 35 dollars per transfer, and a monthly minimum of 500 to 5,000 dollars. The minimum is the one that hurts if your volume drops.
A good rate depends on your sector and your customers, not on you. Trucking and manufacturing sit at the cheap end at 2 to 3 percent for 30 day terms. Staffing runs 3 to 5 percent, construction 3 to 6 percent. Anything above 5 percent for 30 day terms on creditworthy customers is expensive, and worth taking to a second factor before you sign.
Convert every quote to an effective APR before you compare, because the headline percentages are not like for like. Ask each factor for the discount rate, the advance rate, the fee period, every ancillary charge, the monthly minimum and whether the facility is recourse or non recourse. Two quotes at 3 percent can differ by 20 points of APR once the advance rate and fee period are included.
It depends entirely on how long the money is out. A 2 percent fee at a 90 percent advance is about 27 percent APR if your customer pays in 30 days, 18 percent if they pay in 45 days, and 14 percent if they pay in 60 days. The same fee looks cheaper the slower your customers are, which is the opposite of how most people read it.
Multiply your annual factored volume by your effective fee rate. A business factoring 200,000 dollars a month at 3 percent pays 6,000 dollars a month, or 72,000 dollars a year. That is a permanent charge against gross margin, so compare it against your net profit rather than your revenue. For many businesses factoring costs more than their entire marketing budget.
Factoring sells the invoice, so the factor owns the debt and collects from your customer directly. Invoice discounting lends against the invoice while you keep the ledger and keep chasing the payment yourself. Discounting is usually cheaper and stays confidential, but lenders only offer it to businesses with proven credit control, which is why factoring is the default offer to smaller firms.
A rate card shows the discount fee. A calculator shows the annual cost of that fee against the cash you actually receive, which is the only number you can compare with a bank rate. It also shows what the same funding gap would cost on a credit line, and what you would save by not needing the funding at all.
It is worth it when the cash unblocks work you could not otherwise take, and the margin on that work is comfortably above the effective APR. It is not worth it as a permanent substitute for collecting on time, because the fee repeats on every invoice forever. Run the APR first, then check it against your gross margin percentage.
When you have a real cash crisis and no credit line, when a large order needs funding before you can deliver it, when your customers are creditworthy but structurally slow, or when your growth outruns your working capital. Factoring is also reasonable if outsourcing collections saves you a hire. It is a bridge, so agree the exit before you sign.
Paidnice is accounts receivable automation that enforces your payment terms, trusted by thousands of businesses on Xero and QuickBooks. Credit control and debtor management, run for you.
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