Once you have decided to use factoring as a way to increase the cash flow for your business, you have to decide which factoring company is right for you. The first thing to look for in a factoring company is that they have experience working with companies in your industry. Once you have narrowed the search down to factoring companies who specialize in your industry you must consider the terms they outline in their contracts. Here are a few factoring fees and contract terms to understand to save your business time and money.

Terms and fees are a necessary requirement in any contract, factoring included. The issue with this is you need to be aware of when they are harmful terms or burdensome for your business. You need to understand each and every area before signing the factoring contract. The last thing you need is to be surprised after signing. When working with a reputable factoring company they will be 100% transparent about terms and fees.

Upfront, Initial Factoring Fees

There are several fees some factoring companies might charge upfront to process your factoring application. These are common “application” fees coming in a few name variations:

  • Application/Filing fee
  • Documentation fee
  • Processing fee
  • Setup fee
  • Origination fee
  • Underwriting fee
  • Due Diligence fee

Some companies will treat this upfront initial fee as a deposit refunding it after the application is approved.

In addition to setup fees, there might be additional fees assessed at the start of the factoring process:

  • Credit Check fee – the fee for doing credit checks on your client and possibly your company

The (Main) Factoring Fee

This fee is THE fee for using the factoring service. The rate varies depending on the industry needing the funds.

industrypercentage rate
construction2.5% – 3.5%
medical2.5% – 4%
staffing1% – 3.5%
trucking/freight1% – 5%

When assessing factoring companies, be sure to look at all fees and terms in the contract to be sure everything as a whole is beneficial for your business. Picking a factoring company solely based on the lowest factoring rates is not wise if you going to be hit with additional fees that make your overall amount higher.

Flat Fee Factoring vs Variable Fee Factoring

All factoring companies will assess their factoring fee as a percentage of the invoice dollar amount. But, how often you pay is based on a tiered structure: flat vs. variable. As the name suggests, with a flat fee agreement you will simply be paying the rate across the factoring term.

A variable rate assesses different rates at different times of the factoring term. With this pricing model, the longer the invoice goes unpaid, the more fees are assessed. For example, in a tiered model, you might pay 0.75% for the first 10 days, 1% for the next 15 days, 2.5% for the next 30 days, and 0.83% after that.

durationpercentage rate
1- 10 days0.75%
11-15 days1%
16-30 days2.5%
over 31 days0.83%

Both options have pros and cons. If your clients usually pays you early or you have other ways to pay the factoring agreement quicker, a variable rate might end up being cheaper for you. If your customers pay on predictable schedules, locking down a flat rate might be better. Factoring companies that offer both options will require you to do the math on which one works best for your specific situation.

Monthly Minimum Requirements Fees or Penalties for Non-usage

One option a factoring company might offer is factoring a set number of invoices or dollar amounts over a long-term contract. Because they know you will be bringing them consistent business, they will offer you lower fees. Keep in mind that the terms of this “volume financing” arrangement is that you will have to send a set number of invoices every month. If there is a time when you don’t need the service, there will still be fees.

Other” Ongoing Factoring Fees

In addition to the mandatory factoring fee, most factoring companies will charge a startup or origination fee, underwriting fee, and early termination fee. Occasionally other fees might be included:

  • Maintenance/Admin/Service fees – an ongoing fee charged for the upkeep of the account
  • Lockbox/Mailbox fee – often part of the monthly maintenance fee, this fee pays for the location payments are sent.
  • Mailing fee – this fee may be assessed to cover postage when bills, reminders, etc. are physically mailed.
  • Late Fees – a common fee assessed for not receiving payments on time.
  • Wire Transfer/ACH Fee – a fee for electronically transferring factoring money to your bank account
  • Yearly Review Fee – a general fee for keeping your account open
  • Credit Monitoring fee – the fee for doing recurring credit checks on your client
  • Rush Funding fee – a fee for funding accounts faster than the usual turnaround time
  • Renewal fee – a fee for keeping your account open even if you do not use the factoring service
  • Misdirection fee – a fee assessed if your client sends the payments to the incorrect location

Keep in mind that factoring companies often bundle fees together into general fees. For instance, the fees for the Lockbox and Credit Monitoring might be combined into a monthly Maintenance fee.

Termination Fees

It is not unheard of for factoring companies to charge a fee at the end of your factoring arrangement.

  • End-of-contract/Termination fee – a fee assessed at the end of a factoring arrangement to close the account
  • Early Termination fee – a fee designed to recoup fees that the factoring company would have made if the term had not been fully realized
  • Buyout fee – a fee for transferring an existing factoring account to a different factoring company

It’s best to avoid the companies that charge an end-of-contract termination fee, or at least be aware of them and include the fee amount in your overall decision-making math.

Again, good factoring companies will be up-front and clear about the purpose of all your fees, never hiding them deep within your contract.

How to Get Lower Factoring Fees

Compare Different Factoring Companies:

Don’t settle for the first factoring company you find. Shop around and compare the fees, rates, and the terms offered by different Factors. Some may offer lower fees or more favorable terms based on your industry, the volume of invoices you’re factoring, or the creditworthiness of your customers.

Keep in mind that industry-specific knowledge and related services might be a beneficial tradeoff.

Consider Alternative Factoring Options:

Once you’ve found a few factors that seem like a good fit, try to negotiate better terms. Some Factors may be willing to lower their fees if you commit to a longer contract or volumes of factored invoices.

On the flip side, instead of factoring all your invoices, be selective and “spot factor” only the ones that are necessary to get your cash flow stabilized. Fewer invoices can mean fewer fees.

Recourse Factoring vs Non-recourse Factoring:

Non-recourse factoring typically comes with higher fees because the factor assumes the risk of non-payment by your customers. With recourse factoring, you’re ultimately responsible if on the off chance your customers fail to pay. This option usually results in a lower fee structure.

>> Learn more about Recourse Factoring

Creditworthy Invoices:

When choosing which invoices you want to factor, consider your clients’ financial professionalism. If your customers pay their invoices to the factoring company on time, will help you avoid any late fees.

Encourage Faster Payments by Clients:

The longer it takes for your invoices to be paid, the more you’ll pay in factoring fees. Work with your customers to shorten payment terms if possible. Offer them discounts or incentives to pay their invoices early. This can help reduce the amount of time your invoices are outstanding and, as a result, lower the fees (assuming there is no early termination penalty).


Obviously, factoring companies will NOT charge you all these fees. In an attempt to give you the most complete information, we have tried to include every fee you might encounter and its purpose. This will give you a list of fees to look out for and talking points with any potential factor you might be assessing.

Your next step? Find a factoring company that you trust. Check out our resource for what to look for to determine if a factoring company is trustworthy.

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