factoring rates

Factoring Rates: Factors at Play

What Determines Invoice Factoring Rates?

In invoice factoring, a business sells its accounts receivable to a third party factor in exchange for a cash advance. The factor awaits payment from the customer and then withholds a small service fee, known as a factor fee. The factor fee equals the discount rate charged on the face value of the invoice. Every factoring company determines factoring rates in their own way. The primary drivers include: size of a business’s borrowing need, creditworthiness of a business’s customers, age of receivables and whether all or select invoices will be financed.

Size of the Borrowing Need

The size of a business and its associated borrowing need are primary factors contributing to a factoring rate. As general parameters, annual revenue of $1,000,000 to $50,000,000 and a borrowing need of $30,000 to $5,000,000 describe a potential business fit for invoice factoring. As volume increases and growth ramps up, an accounts receivable line expands with a business. With growth and expansion come savings due to scale. More money being borrowed makes it easier for the lender to cover the costs associated. Thus, expect a lower rate as the borrowing need increases.

Creditworthiness of Customers

The credit strength of a business’s customers also affects a factoring rate. Large corporations, government entities and many of the best customers often demand longer payment time frames. These customers maintain solid credit profiles and a high likelihood of repayment. In instances like this, a business can leverage the strength of its customers’ credit profiles to secure financing. As one of the most important factors, the credit data of a business’s customers closely correlates to the factoring rate.

Average Age of Accounts Receivable

The weighted average of all outstanding invoices or “how long it takes customers to pay.” In keeping with the time value of money theory, money available at the present time has more value than the same amount in the future. Accordingly, the factoring rate decreases if the customer pays in 15 days versus 45 days.

Group or Select Invoice Financing

Some factoring companies only buy accounts receivable in entirety, while other factoring companies give clients the choice of selling select invoices. Often the baseline assumption presumes that all invoices will be financed, so if not the rate may increase.


Comparing invoice factoring costs across lenders can be difficult because different terms, rates and fees will be specific to each lender. Keep the four factors above in mind and engage with a transparent lending partner.

At The Southern Bank Company, our successful 80-year banking history exemplifies our commitment to treating customers fairly and with the utmost transparency. Through our altLINE program, we provide competitive and straight forward accounts receivable lines.

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