A factoring fee (also called a discount fee) is what a factor charges for buying an invoice and waiting to be paid. It is usually stated as a percentage of the invoice's face value and deducted when the invoice is settled.
How it works in factoring
Fee structures vary, and the same headline percentage can produce very different costs. Common approaches include:
- Flat fee: one percentage applied once, regardless of when the customer pays within an agreed window.
- Tiered or time-based fee: a starting percentage for an initial period, then added increments for each further block of days the invoice stays open.
- Prime-based or interest-style pricing: a charge calculated on the money advanced, tied to a benchmark rate plus a margin, accruing daily.
Many agreements also include separate charges: application or setup fees, wire or ACH transfer fees, credit check fees, lockbox fees, monthly minimums and termination fees.
Illustrative example: On a $10,000 invoice with an assumed fee of 2% for the first 30 days plus 1% for each additional 15 days, a customer paying on day 50 would trigger a total fee of 4%, or $400.
What to check
- Is the fee charged on the full invoice amount or only on the advanced amount?
- How are days counted, and when does the clock stop (when the payment arrives, or when it clears)?
- Which additional fees apply, and are they per transaction or monthly?
- Is there a minimum fee or minimum monthly volume?
Asking for a worked example using your own invoice sizes and your customers' real payment times is the most reliable way to compare offers.