Invoice factoring · Pricing
What factoring costs,
and what moves the number.
A factoring rate is a percentage of the invoice value charged for the period the invoice is outstanding, not an annual interest rate. Price is driven by monthly volume, average invoice size, the credit quality of your customers, how quickly they pay, and your industry. Advance rates are typically 80 to 90 percent of eligible invoice value, depending on the industry, customer credit and facility terms, and the reserve is released when your customer pays.
Based in Oklahoma City. Funding businesses nationwide.
By the Hexagon Commercial Finance team.
The three numbers that define any factoring quote.
The advance rate is the share of the invoice paid to you immediately. Advance rates are typically 80 to 90 percent of eligible invoice value, depending on the industry, customer credit and facility terms. This determines cash flow timing, not total cost.
The factoring fee is the cost of the transaction, expressed as a percentage of invoice value for a defined period outstanding. This is the number that determines what you actually pay.
The reserve is the difference between the invoice value and the advance. It is not a cost. It is your money, held until your customer pays and then released to you less the fee.
A quote is only meaningful when all three are stated together, along with the fee structure for invoices that run past the first period.
Why two businesses get different rates.
Volume and invoice size. Processing one 90,000 dollar invoice costs a factor far less than processing sixty 1,500 dollar invoices. Pricing reflects that directly.
Customer credit quality. Invoices owed by a national carrier, a hospital system or a federal agency carry less risk than invoices owed by thinly capitalised private companies.
Days to pay. A customer that reliably pays in 35 days generates one period of fee. A customer that drifts to 75 days generates more, which is why predictable payers earn better pricing.
Dispute and deduction history. Industries and customers with frequent short payments, back charges or retainage add verification work and credit risk, and pricing reflects that.
Concentration. If 80 percent of your receivables sit with one customer, the facility carries more risk than a spread ledger of similar size.
The questions to put to any factor in writing.
Is there a monthly minimum volume, and what is the charge if I fall short? What is the contract term and the notice period to exit? Are there setup, due diligence, credit check, wire or ACH fees? How are invoices treated once they pass 60 or 90 days? Is the facility recourse or non-recourse, and how exactly is a credit loss defined? Do I have to factor every customer, or can I select?
A factor that answers all of these in writing without hesitation is the one to work with. A quote built on a single attractive-looking percentage, with the rest left to the agreement, is how businesses end up paying more than they expected.
At a glance
- Pricing basis
- Percentage of invoice value per period outstanding
- Not an APR
- Each invoice settles separately, no rolling balance
- Typical advance
- 80 to 90 percent of eligible invoice value, depending on industry, customer credit and facility terms
- Reserve
- Your money, released on customer payment
- Lowers your rate
- Volume, invoice size, strong customers, fast payers
- Raises your rate
- Small invoices, slow payers, disputes, concentration
Cost drivers at a glance
Two facilities of identical size can be priced very differently. These are the reasons why.
| Tends to lower the rate | Tends to raise the rate | |
|---|---|---|
| Monthly volume | Higher and consistent | Low or irregular |
| Average invoice size | Larger invoices | Many small invoices |
| Customer credit | National, public or government | Thin or unrated private payers |
| Days to pay | Reliably within terms | Frequently past 60 days |
| Documentation | Clean and consistent | Incomplete or disputed |
| Customer spread | Several strong customers | Heavy single-customer concentration |
Questions people ask
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