A tiered fee is a factoring fee structure in which the charge grows the longer an invoice stays unpaid. A base rate covers an initial period, and added amounts apply for each later block of days.
How it works in factoring
Tiered pricing ties the factor's revenue to how long its money is outstanding. It can be written several ways:
- A base rate for the first 30 days, then an increment for every additional 10 or 15 days
- A schedule of cumulative rates, such as one rate for payment in 30 days, a higher one for 45, and so on
- Daily accruals after an initial period
Illustrative example: An assumed fee schedule charges 2.5% if paid within 30 days, plus 0.5% for each additional 10 days or part of 10 days. An invoice paid on day 43 incurs 2.5% + 0.5% + 0.5% = 3.5%.
Compare that with a flat fee, which charges one percentage regardless of payment timing within an allowed window, or prime-based pricing, which charges interest on the advance at a benchmark rate plus a margin.
What to check
- How partial periods are counted; rounding up to a full period adds cost
- Whether the clock stops when payment arrives or when it clears
- Whether the fee is charged on the face value or only the advanced amount
- The maximum fee before recourse or chargeback applies
A practical way to compare tiered fees is to apply each proposal to your own customers' actual payment history. A low base rate with steep increments can cost more than a higher flat rate if your customers pay slowly.