Invoice Factoring Rates Explained

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Every factoring company does things a bit differently. In order to better equip borrowers in evaluating their options, we’ve put together a helpful guide on our invoice factoring rates to reveal exactly how much factoring costs with altLINE.

Key Takeaways

  • Factoring Rates Vary: Invoice factoring rates tend to range from 1% – 5% of the invoice value, and factoring companies take several data points into account when determining rates, including the amount a client plans to factor, the average age of outstanding invoices, debtor credit, and debtor concentration.
  • Tiered Fee Structures Are Common: A common rate set up in the factoring industry are tiered fee structures, which include an initial factoring fee that increases as the invoice remains unpaid.
  • Factoring Contracts Include More Than Just the Base Rate: There are typically more fees included in a factoring agreement than just the factoring rate, such as ACH, wire, and origination fees.
  • Freight Factoring Rates Are Structured Differently: Freight factoring often has different rate structures than general factoring, including higher advance rates and flat fee structures.

How Much Does Factoring Cost?

The exact cost of invoice factoring will vary based on the business, though it generally comes out to 1% – 5% of the value of each invoice.

We understand that there’s a significant difference between being charged 1% and 5%, so it’s important to outline what we use to determine the precise cost for your company.

How are Factoring Rates Determined?

  1. The Dollar Volume of Invoices Factored: Like most businesses, economies of scale are at play for factoring companies as well. Many of the costs associated with establishing and maintaining a factoring relationship are fixed in nature, so the more a factoring client utilizes its line, the lower their rates will be.
  2. The Length of Time an Invoice Is Outstanding: Factoring companies must account for the time value of money. The longer a factored invoice remains unpaid, the higher the factoring fee will be in order to account for their money being out the door.
  3. The Credit Quality of the Debtor: With the factoring company analyzing the likelihood of repayment on factored invoices, they’re really evaluating the credit of a business’s customers. Better debtor credit often equates to lower factoring fees for the seller of an invoice.
  4. Debtor Concentration: Debtor concentration refers to the percentage of AR (accounts receivable) owed by a single debtor. When evaluating fee structures, factoring companies take the debtor concentration into account to mitigate risk, and having a higher percentage of your AR tied to a single debtor is considered riskier. Generally speaking, if you have a lower debtor concentration, you’re more likely to get better invoice factoring rates.

Generally, the more invoices you factor (in terms of both volume and percentage of your ledger), the better rates you will be offered. Further, if your debtors have a good credit score and a history of paying on-time, you will get lower rates than if they have a history of paying late.

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Factoring Fee Structures

The cost of factoring receivables is predominately based on the initial factoring fee. This fee is sometimes referred to as a processing fee, discount fee, or service fee.

The factoring fee is stated as a percentage and is assessed to the face value of an invoice when an invoice is paid. The fee is based on a rate structure established at the outset of the factoring relationship and typically increases as an invoice ages and remains unpaid.

The two most common factoring rate structures are what we refer to as tiered rate structures and daily rate structures.

Tiered rate structures mean the factoring fee increases every ten to thirty days the invoice stays outstanding. In contrast, daily rate structures mean the factoring fee increases every day the invoice ages, albeit by a much smaller increase compared to a tier structure. To calculate the factoring fee with a daily rate structure, simply multiply the daily rate by the number of days the invoice was outstanding.

In the example below, an invoice aged 42 days would be charged a 2.5% discount in the tiered rate structure and a 2.1% discount in the daily rate structure.

Example of a Tiered Factoring Structure

Invoice Age
Rate
0 - 30 days
1.5%
31 - 40 days
2.0%
41 - 50 days
2.5%
51 - 60 days
3.0%
61 - 70 days
3.5%
71 - 80 days
4.0%
81 - 90 days
4.5%

Typical Factoring Fees

At altLINE, we pride ourselves on keeping our factoring rates straightforward and transparent, so you know exactly what your factoring terms will be. As such, we try to charge fewer fees than what other factoring companies charge. We’ve outlined some of the most common ancillary fees below for you to keep an eye out for:

  • ACH Fee: This is a transaction fee that factoring companies may choose to assess anytime funds are transferred via ACH. It typically ranges between $5 and $30, but altLINE’s ACH transfer fees start at $0. ACH fees should be negotiated out of factoring contracts.
  • Wire Fee: In the event a borrower needs access to funds immediately, most factoring companies can issue a wire as opposed to an ACH. Factoring companies are charged a wire fee by their lender or the Federal Reserve, and those fees are often passed through to the business. At altLINE, we charge $15 – $30 per wire transfer.
  • Initial Filing Fee / Origination Fee: An initial filing fee (or origination fee) is charged to process the invoice factoring application. These fees can range greatly from 0% to 3% of the credit line amount. altLINE typically charges $150 – $500 for the initial filing fee, but we will occasionally charge up to 1% of the credit line amount. However, we will not charge the fee until after you have been funded, so you do not need to worry about paying an application fee with the risk of not being approved.
  • Float Days: While not technically fees, float days are a time allowance for check clearance that most factoring companies work into their contracts. This time allowance can bump you into the next tier of fees in an incremental rate structure, which can result in you being charged more. altLINE does not include float days in our contracts.
  • Lockbox Fee: Sometimes referred to as a monitoring fee, the lockbox fee is a monthly fee ranging from $50 – $1,000 per month. For most invoice factoring relationships, a lockbox fee should not be necessary unless it comes with significantly reduced factor fees.
  • Monthly Minimum Volume Fee: This fee is only applied should the company not factor a pre-determined volume of invoices (measured in dollars) in a given month. High monthly minimum fees can increase overall invoice factoring costs and limit the financing flexibility of the borrower.
  • Unused Line Fee: This fee is typically reserved for larger transactions and not as common as other fees listed. It is a percentage fee applied to the average unused portion of the overall line for a given month.
  • Monthly Access Fee: Some companies will charge a monthly access fee to access the provided software. These fees can get pretty costly, but altLINE does not charge a monthly access fee.
  • Credit Approvals: Credit approvals are common to see in invoice factoring contracts and can cost anywhere between $35 and $100 per credit check on your debtors. However, altLINE does not charge for credit approvals.
  • Renewal Fee: Many factoring companies charge an annual renewal fee that is equal to a percentage of the overall line size. If you wish to withdraw from the agreement, you can avoid fees by sending your letter of release during the window for notification. This is the 30-day period where you can end your partnership without added fees before your contract automatically renews.

Compare Invoice Factoring Terms

For a general comparison of how much factoring companies charge and what to expect with altLINE vs. other factoring companies, check out the table below.

Note that while our fees generally fall within the ranges included, we customize our rates for each customer, so your fees may vary from what you see below.

altLINE
Other Factoring Companies
Advance Rate: 80% – 90%
Advance Rate: 80% – 90%
Initial Fee: 0.5% – 3.0%
Initial Fee: 0.5% – 3.0%
Origination Fee: $150 – $500
Origination Fee: 0% – 3.0% of credit line amount
Float Days: None
Float Days: 3 – 5 days
ACH Fees: $0 - $3
ACH Fees: $5 – $30
Lockbox Fee: None
Lockbox Fee: $50 – $1000 per month
Monthly Access Fee: None
Monthly Access Fee: Up to $300
Credit Approvals: $0
Credit Approvals: $35 – $100
Same Day Funding Fee: None
Same Day Funding Fee: 1%
Renewal Fee: None
Renewal Fee: Varies

Invoice Factoring Rate Example

Let’s say that you use the tiered fee structure that is outlined in the table below. In this structure, your initial fee amount is 1.5%, and your incremental fee is 0.50% every 10 days. But what does this actually mean? The amount you are charged depends on when your customer pays the invoice. We’ve outlined a few payment scenarios below to illustrate:

If your customer pays the outstanding invoice within the first 30 days (which is the initial fee period), you will only be charged 1.5% of the invoice face value.

  • If your customer pays the invoice on day 35 of it being outstanding, you will be charged 2.0% of the invoice face value because the invoice has then aged into the next fee tier.
  • If your customer pays the outstanding invoice on day 75, you will be charged 4.0% of the invoice face value.

As you can see, the quicker your customer pays the invoice, the lower the factoring rate is. Under traditional Net 30 payment terms, you are typically in a good position to get your invoices paid before larger incremental fees are applied.

Freight Factoring Rates

Freight factoring tends to operate a bit differently than traditional invoice factoring, including having different rate structures.

For example, advance rates in the trucking industry are up to 100% of the invoice value, while it’s up to 90% in other industries. Additionally, freight factoring rates typically do not use tiered rate structures, so you will usually have one base rate.

In addition to the differences noted above, there are other types of fees that some freight factoring companies charge:

  • Invoice Processing Fee: Some companies will charge an invoice processing fee in addition to ACH and wire fees. However, this differs because it is charged per invoice, while ACH and wire fees are charged per transaction. For trucking companies that typically submit multiple invoices to be processed in a single transaction, this fee can increase the cost. Note that altLINE does not charge invoice processing fees.
  • Minimum Invoice Fee: This is a fee that some freight factoring companies tack on to small invoices. It is similar to an invoice processing fee but is only charged on invoices that do not meet a minimum threshold. Note that altLINE does not charge minimum invoice fees.
  • Fuel Advance Fee: This is a standard charge in the freight factoring industry and is only applied when the customer opts to receive a fuel advance, giving them access to partial funds to use for fuel ahead of delivering a load. The advance fee is usually around $25.
  • Promotional Factoring Fee: Occasionally freight factoring companies will offer a promotional factoring rate for a short period of time before the standard factoring rate kicks in. These promotional rates are usually 0% – 1% and frequently last for just the first month of the contract. Note that some shadier factoring companies may only advertise the promotional rate, so if your factoring fee seems too good to be true, be sure to ask if it is a promotional rate and when it will increase.

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