The short answer
Wholesale and distribution factoring is usually priced per 30 days an invoice is unpaid. Typical quotes run from about 1% to 3% per period, with large, diversified portfolios sometimes pricing below 1%. Advances usually run from 75% to 90%.
On a $40,000 invoice to a retailer on net 60 terms at 1.5% per 30 days, the fee is $1,200, or 3% of the invoice. Retailer deductions are the bigger hidden cost: if the retailer takes a 3% chargeback, that comes out of your reserve on top of the fee.
The rate a distributor pays depends far more on who its customers are than on the distributor itself. Selling to large retailers and established dealers earns better pricing than selling to small independents.
What wholesale factoring costs, line by line
| Cost item | Typical range | How it works |
|---|---|---|
| Factoring rate | about 1% to 3% per 30 days | Charged on the invoice amount per period unpaid |
| Advance rate | 75% to 90% | Lower for customers with heavy deductions |
| Reserve | 10% to 25% | Covers the fee and expected deductions |
| Credit protection | added points, varies | When the factor takes customer credit risk |
| Setup and credit check fees | one-time or per new customer | For approving new buyers |
| Transfer fees and minimums | varies | Get them in writing |
These are typical quotes, not offers. Each factor prices after reviewing your customer list, deduction history and volume.
How retailer deductions change the cost
Large retailers routinely pay less than the invoice amount. They take deductions for late shipments, labeling errors, damaged goods, co-op advertising, returns and allowances, often weeks after the invoice is paid. Factors call this dilution.
Dilution matters for cost in two ways. First, deductions come out of your reserve, so the money you expected back is smaller. Second, a factor that sees a high deduction rate in your history will set a lower advance and a bigger reserve to protect itself.
Cutting deductions by fixing routing, labeling and shipping compliance often saves more than negotiating the factoring rate down by a quarter point.
A worked example
A housewares distributor ships a $40,000 order to a regional retail chain on net 60 terms. The factor advances 80% and charges 1.5% per 30 days, counting any part of a period as a full one. The retailer pays on day 60 but takes a $1,200 deduction for a labeling compliance issue.
| Step | Amount |
|---|---|
| Invoice | $40,000 |
| Advance paid after shipment is verified (80%) | $32,000 |
| Reserve held back (20%) | $8,000 |
| Factoring fee (1.5% × 2 periods) | $1,200 |
| Retailer deduction | $1,200 |
| Reserve released when the retailer pays | $5,600 |
| Total received | $37,600 |
Without the deduction, the distributor would have received $38,800. The factoring fee and the chargeback cost the same here, which is common with large retail accounts.
Run your own numbers
The calculator below starts with the example above, without the deduction. Enter your invoice, the advance and rate from your quote, and the days your customers actually take. Then subtract your average deduction rate from the result to see your real net.
Your results
- Cash today (advance)
- $32,000.00
- Reserve held back
- $8,000.00
- Total cost (factoring fee)
- $1,200.00 (3% of invoice)
- Rebate when your customer pays
- $6,800.00
Fee periods charged: 2.
Estimates only. Actual rates and advances are set by each factoring company.
What drives your rate
Customer credit. Large retailers and established dealers price lower than small independent stores. Some factors set a credit limit for each buyer.
Deduction history. A low dilution rate earns higher advances and lower rates. Heavy chargebacks do the opposite.
Payment terms. Net 30 invoices cost one period, net 60 two, net 90 three. Customers who pay late add more.
Concentration. Selling mostly to one chain or buying group leads to concentration limits or lower advances on that customer.
Volume and seasonality. Steady volume prices better. Seasonal distributors may face minimums in slow months.
Inventory and purchase orders. Distributors who need cash before shipping, to pay suppliers, may pair factoring with purchase order financing. See the PO financing guide for how that works and what it costs.
Recourse, credit protection and what it costs
Most distribution factoring is recourse: if a customer does not pay, you buy back the invoice. Some factors offer non-recourse terms, which protect you if an approved customer becomes insolvent. That protection usually costs extra, either added to the rate or charged as a separate credit protection fee.
Credit protection does not cover disputes, deductions or quality claims. If a retailer refuses to pay because of a shipping problem, that is still your loss, protected or not. Read the definition of a covered credit event before paying for it.
For distributors selling to many small retailers, credit protection can be worth the cost because any one store failing is a real possibility. For distributors selling to a few large chains with strong credit, the premium often buys little.
When factoring is not the right fit
Factoring is designed for businesses whose customers pay reliably but slowly. It is less useful when margins are thin enough that a 3% fee plus deductions wipes out the profit on an order. Run the numbers on your lowest-margin product line before committing.
It is also a poor fit if most of your cash is tied up in inventory rather than receivables. In that case, inventory financing or purchase order financing addresses the real constraint, and factoring can follow once goods ship.
Spot factoring or a full program
Distributors with uneven cash needs often ask whether they can factor only some invoices. Many factors allow it. Spot or selective factoring avoids minimums and lets you choose which customers to finance, but the rate per invoice is usually higher and each new customer still needs a credit check.
A full program, where you factor all invoices to approved customers, generally costs less per invoice and funds faster once in place, in exchange for a contract term and often a minimum volume. Seasonal distributors should ask how minimums are measured, monthly or annually, before choosing.
How to compare quotes
- Ask each factor to price the same invoice to your largest customer at 30, 60 and 90 days.
- Confirm how partial periods are counted.
- Ask how deductions are handled and whether they are charged against the reserve or billed back.
- Get credit limits for your key customers in writing.
- List every fee outside the rate, including new-customer credit checks.
The distribution and wholesale hub lists factors that work with distributors, or use Get a Quote below. For a view across all industries, see what invoice factoring costs.
Frequently asked questions
What is the typical factoring rate for a distributor?
Most quotes run from about 1% to 3% per 30 days. Distributors with large, creditworthy customers and few deductions land at the low end, and some large portfolios price below 1%.
How much will a factor advance on wholesale invoices?
Usually 75% to 90%. Customers with heavy deduction histories, or one customer making up most of your sales, tend to get a lower advance.
What are retailer deductions and why do factors care?
Deductions are amounts a retailer subtracts from payment for things like compliance errors, damages or promotions. They reduce what the factor collects, so factors hold bigger reserves and lower advances for customers who take them often.
Does factoring cover retailer chargebacks?
No. Factoring advances against the invoice, and deductions reduce what is collected. Unless your agreement says otherwise, deductions are charged back to you, usually from your reserve.
Is factoring cheaper than a bank line for distributors?
A bank or asset-based line is usually cheaper once you qualify. Factoring is easier to get, grows with sales, and relies on your customers' credit rather than your balance sheet.