How to use this list
A proposal is a sales document; the contract is the deal. Most of the signs below show up as a gap between the two: a number that is quoted without its companion number, a promise with no clause behind it, or a clause with no formula. For each one we describe what it looks like, why it costs you, and the one question that gets a straight answer. Where a factor we profile publishes the opposite on its own site, we say so, because it shows the better practice exists and is not an unreasonable thing to ask for.
Two companion guides go deeper: hidden fees on the charges that sit outside the rate, and how to read a factoring contract on clause language.
The thirteen signs
1. A rate with no advance rate or reserve terms
What it looks like: "1.5 percent" in large type, and nothing about how much of the invoice you receive up front or when the rest comes.
Why it costs you: The fee is only half the price. A 1.5 percent fee on an 80 percent advance, with the reserve released 30 days after the customer pays, is a worse deal for cash flow than 2.5 percent on a 95 percent advance released on payment. Of the factors we profile, several publish both numbers: Riviera Finance advances up to 95 percent (Riviera Finance — Transportation factoring), American Receivable up to 95 percent with fees from 0.8 percent (American Receivable), and 1st Commercial Credit publishes 75 to 98 percent by industry with a 0.69 to 4 percent fee range (1st Commercial Credit — FAQ, 1st Commercial Credit — Invoice factoring).
The question: "What is the advance rate, and on what day is the reserve released after my customer pays?"
2. "No hidden fees" with no fee schedule
What it looks like: The phrase appears on the website and in the proposal. The contract has an exhibit of charges that nobody walked you through.
Why it costs you: "No hidden fees" is a description of the factor's intentions, not a list. The list is what you pay. Integra Funding Solutions, for example, says it discloses every fee in writing before signing (Integra Funding — Fees); that is the standard to hold everyone to.
The question: "Send me the complete schedule of charges, including wire, ACH, processing, credit check, minimum and termination fees, before I sign."
3. A term longer than twelve months with auto-renewal and a short notice window
What it looks like: A twelve- or twenty-four-month initial term, renewal for a further term unless you give written notice 60 or 90 days before the end, and nothing on the proposal about any of it.
Why it costs you: Miss the window and you have signed up for another full term, with the early termination fee that goes with it. Several factors publish the opposite: Apex Capital says no long-term contract and no cancellation fee (Apex Capital — FAQ), Liquid Capital says no auto-renewal or exit fees (Liquid Capital — FAQs), and Phoenix Capital Group describes a month-to-month agreement (Phoenix Capital Group — FAQ).
The question: "What is the initial term, does it renew automatically, and what is the last date I can give notice?"
4. A minimum volume fee
What it looks like: "Minimum monthly volume: $50,000" in the proposal, with the consequence of missing it in the contract: a fee calculated as if you had factored the minimum.
Why it costs you: In a slow month you pay for invoices you did not have. Businesses with seasonal revenue, which includes much of construction and staffing, are hit hardest. Many factors publish no minimum at all; the no-minimum list ranks them.
The question: "If I factor nothing in a month, what do I owe?"
5. Termination and buyout charges that are not a formula
What it looks like: "Early termination fees may apply" or "a buyout fee as determined by the Company."
Why it costs you: A fee you cannot calculate is a fee you cannot plan around, and it is the one that decides whether you can ever leave. Our guide on when to switch factors shows how an undefined termination fee wrecks the break-even arithmetic.
The question: "Write the early termination fee and the buyout calculation as a formula I can apply to my own numbers."
6. Non-recourse with no defined covered event
What it looks like: "Non-recourse factoring" in the headline. Nothing in the contract about what event triggers the protection.
Why it costs you: Non-recourse that covers only a customer's formal bankruptcy leaves you holding every invoice that goes unpaid for any other reason, including the most common one, which is a customer that simply does not pay. The better-drafted programs name the event. Thunder Funding's FAQ says its non-recourse covers bankruptcy or insolvency (Thunder Funding — FAQ); Integra says insolvency of a previously approved customer, not slow payment (Integra Funding — FAQ); Phoenix Capital Group says bankruptcy or insolvency, not disputes (Phoenix Capital Group — FAQ). You may not like the definition, but you can price it. The non-recourse list ranks factors on how clearly they state it, and the recourse guide explains what is usually excluded.
The question: "Name the exact events under which you absorb the loss, and the ones under which I do."
7. Exclusivity over all receivables when you only want to factor some
What it looks like: A clause assigning all present and future accounts to the factor, when the proposal talked about "factor the invoices you choose."
Why it costs you: You lose the ability to let a fast-paying customer pay you directly, and every customer receives a notice of assignment whether or not you ever factor its invoices. Some factors publish selective terms: Factoring Express says you factor the invoices you choose (Factoring Express). Others publish a narrower rule that is still worth knowing: OTR Solutions says that once a broker is factored, its invoices must be factored until release (OTR Solutions — FAQs).
The question: "Can I exclude named customers from the agreement, and will they receive a notice of assignment?"
8. Vague funding cutoffs
What it looks like: "Same-day funding" with no cutoff time, time zone or definition of a complete submission.
Why it costs you: Same-day to a factor with an 11 a.m. Eastern cutoff is next-day to a dispatcher who closes out at 4 p.m. Central. Factors that publish the cutoff make the promise checkable: Bobtail funds the same day by 6 p.m. Eastern if invoices arrive by 11 a.m. Eastern (Bobtail — Factoring FAQ); Thunder Funding funds the same day if sent by noon Pacific (Thunder Funding — FAQ); Integra funds the same business day for complete paperwork by 1 p.m. Central (Integra Funding). The fastest-funding list compares published cutoffs.
The question: "What is the cutoff time, in which time zone, and what counts as a complete submission?"
9. Chargeback timing that is not disclosed
What it looks like: A recourse agreement that says unpaid invoices will be charged back, without saying after how many days or whether the fee keeps accruing until then.
Why it costs you: On a 90-day chargeback with a tiered fee, an invoice that is charged back has cost you the top tier of fees before you get it back to collect yourself. On a 60-day chargeback the same invoice costs less and comes back sooner.
The question: "After how many days is an unpaid invoice charged back, and what fee has accrued by then?"
10. Pressure to sign the same day
What it looks like: A rate that is "only good today," an application that becomes an agreement with one more signature, or a request for your customer list before you have seen the contract.
Why it costs you: Every clause above is something you need a day to read. A factor that will not give you that day is telling you how the relationship will go.
The question: "Send the full agreement and fee schedule; I will respond in 48 hours." If the rate disappears, so should the factor.
11. No published address, and no registration where a state requires it
What it looks like: A website with a contact form and a toll-free number, no physical address, and no mention of licensing in states that regulate commercial financing disclosures.
Why it costs you: You will be assigning your receivables to this company and telling your customers to pay it. You need to know who it is. Several of our state pages note where disclosure or registration rules apply to commercial financing; a factor that operates there and does not mention them has either not noticed or would rather you did not.
The question: "What is your legal entity name, your physical address, and your registration in my state if one is required?"
12. Reviews that describe collections aggressiveness with customers
What it looks like: Star ratings look fine; the written complaints say the factor's collections team called the reviewer's customers repeatedly, threatened them, or damaged the relationship.
Why it costs you: In freight, brokers remember which factor hounded them, and some will stop tendering loads to carriers who use it. In other industries a single large customer may be most of your revenue.
The question: "Describe your collections process, step by step, from the day an invoice goes past due."
13. A "factoring company" that is really a lead reseller
What it looks like: A site that asks for your phone number, volume and customer list, promises "multiple offers," and never names the company that will actually buy your invoices or how it is paid.
Why it costs you: Your information may be sold to several lenders and marketplaces at once, and the calls that follow are not from a factor evaluating your business but from salespeople who paid for your name. We should say plainly what this site is: a referral partner. We profile factors from their own published terms, rank them by a published method, and connect you with a factor that fits your industry, state and volume. The factor quotes your terms. Factors pay us for introductions, never you, and that never changes a score; the details are on how we're paid.
The question: "Who will fund my invoices, and how is your company paid?"
What a clean proposal looks like
Put the thirteen signs together and the opposite is easy to describe: a quoted fee and a quoted advance rate side by side; a complete fee schedule as an exhibit; a term you can leave on a stated date with a stated cost; non-recourse with a named covered event; a cutoff time in a time zone; a chargeback day count; and a company with an address that answers the collections question without hesitation. Several of the factors on the small-business list publish most of this on their own sites, which is the easiest way to tell which will put it in writing.
If you want a short list built from your own situation, the get-matched wizard ranks the factors we have profiled by industry, state and monthly volume. Take the contract from whichever one you choose and run it against this page before you sign.
Frequently asked questions
Is a high factoring rate itself a red flag?
Not on its own. A rate is high or low relative to your customers' credit, your invoice sizes and how long customers take to pay. A 3.5 percent fee on 30-day invoices from strong customers is expensive; the same fee on 60-day invoices from thin-credit customers with non-recourse protection may be fair. The red flag is a rate quoted without the terms that give it meaning.
Should I avoid any factor that charges a termination fee?
No. A clearly stated termination fee inside a reasonable term is a normal trade for a lower rate or a larger advance. The warning sign is a fee that is not written as a formula, or a term that renews automatically with a notice window you were not told about.
How do I check a factor's complaint record?
Look up the legal entity, not the brand, on the Better Business Bureau and on your state attorney general's consumer complaint database, and read the written complaints rather than the rating.
What if the factor refuses to answer one of these questions?
Treat the refusal as the answer. Every question on this page is one a factor answers for itself every day; a company that will not put the answer in writing for a prospective customer is unlikely to be more forthcoming once you are a signed one.