Businesses looking for the best factoring company to improve cash flow often focus their negotiation efforts on getting the lowest rate. While this approach feels logical, there may be better strategies for several reasons. Although a low rate is vital, it is only one of many components of your total factoring cost.
Most factors advertise low rates to draw your attention. Posted rates like “starting from 1.95%” may be attractive, but they don’t provide enough information to make an informed decision. Additional fees, lower advance rates, slower speed of funding, and limited value-added services can combine to raise the cost of funding despite an advertised low rate.
Read on to learn more about how more progressive invoice factoring companies can provide maximum value at the best cost.
What is Invoice Factoring in 2025?
Invoice factoring is a financial transaction and a type of debtor finance. In an invoice factoring arrangement, a business sells its accounts receivables (invoices) to a factor or factoring company at a slight discount (the factoring rate). Companies will often do this to meet their present and immediate cash needs versus waiting for remittance based on the payment terms of an invoice receivable.
Factoring Rate vs. Factoring Cost
A factoring rate is the advertised fee for funding – factoring cost is the total sum of money spent to acquire that funding. These terms may sound similar, but they are not the same. When comparing factoring companies, one of the first things most business owners do is look at the rate and find any way to lower it. But it’s essential to look beyond the introductory rate to find the actual cost. Consider the following when weighing your total cost of factoring:
Don’t forget the “additional fees”
Additional fees are often charged to compensate the factor for conducting compulsory services and actions per the terms of the factoring agreement. Factoring companies typically charge these additional fees on top of the rate, which adds to the overall factoring cost. Conversely, the factoring company may advertise “no additional fees” but raise its factoring rate to make up the difference. No matter how they are managed, these additional fees should be transparent, reasonable, and justifiable. A reputable factoring company will explain and discuss their additional fees upfront during negotiations.
Costs hidden in rate formulas
Depending on how long it takes for your customers to pay, some factoring companies use variable rate or tiered rate formulas. For example, a factor may charge a 2.5% factoring fee (rate) for the first 30 days but add another half percent every ten days the invoice remains uncollected. The longer the invoice remains uncollected, the higher the cost to finance the receivable.
Are you getting tiered discounts?
Often, the rate you are given at the start of a factoring agreement is the rate you will keep throughout the contract. In this case, your supposedly great rate never gets lower, even when you double your volume. Conversely, the strongest factoring companies may offer you a competitive initial factoring rate based on your current volume, then extend tiered discounts as your volume of factored invoices increases. In this case, the more you factor, the less it costs to finance your receivables.
How large is your advance?
Most business owners are looking for the maximum cash advance from their factored invoices, which is likely to be the case for you. By leveraging advanced technologies to minimize risk, some progressive factoring companies provide higher cash advances on factored invoices. If the low rate you received doesn’t also secure you a high advance rate, then once again, your overall factoring cost is higher since you are getting advance access to less of your invoice value.
For a deeper dive into determining a factoring rate, visit our blog on Understanding Rates, Fees, and the Total Cost of a Factoring Agreement.
Average Factoring Rates and Advances in 2025
Factoring rates vary by industry, risk, time, advance rate, transaction workload, and volume. Lower rates and higher cash advances are usually offered to companies with lower risks and easy-to-manage receivables. Conversely, higher-risk companies or companies whose receivables require substantial processing tend to have higher rates.
The following table shows typical rates and advances in key industries. The tabled rates represent the average rate for the first 30 days of factoring receivables. Unless you have a flat fee contract, rates are usually prorated based on how long it takes your customers to pay your invoices.
| Average Factoring Rates in 2025 | ||
| Industry | Factoring Rate | Advance Rate |
| Transportation | 1.95% – 4.0% | 97% – 100% + |
| Healthcare | 2.5% – 4.5% | 85% – 95% |
| Staffing | 1.95% – 4.5% | 85% – 97% |
| Wellness | 2.5% – 5.5% | 70% – 90% |
| General Small Business | 1.95% – 4.5% | 85% – 95% |
| Retail & Wholesale | 1.95% – 4.5% | 80% – 95% |
| Construction | 3.0% – 6.0% | 70% – 80% |
| Food & Beverage | 2.5% – 5.5% | 70% – 90% |
What are the Best Invoice Factoring Rates?
Some industries are ideally configured for invoice factoring. Experienced factoring companies specializing in these industries can maximize their customers’ value by optimizing efficiencies. For example, factoring companies specializing in transportation can offer exceptionally high advance rates of up to 100% of the invoices’ face value to their customers.
Traditional Factoring vs. Modern Factoring
The value-added side of factoring costs
Today, invoice factoring companies can be defined as either traditional or modern. A traditional factoring company is a third-party organization that will buy your unpaid invoices using conventional means. They will advance you a portion of the outstanding debts, hold back a reserve, and then directly collect from your customers. Once the factoring company receives full payment for each invoice, the reserve is released and provided to you. Money is sent via ACH or wire transfers – legacy technology constrained by cut-off times that limits the speed of funding.
Modern factoring companies perform a similar function but much faster and with significantly more features and benefits. Utilizing advanced technology, the most progressive modern factors direct funds to clients the instant invoices are approved for funding without the constraints of cut-off times. Once in your account, customers can self-direct funds 24 hours a day, 7 days a week, straight into your bank account or to pay bills and suppliers.
Furthermore, modern factoring companies take a more holistic approach to solving cash flow problems. Additional support services and tools are provided to help customers optimize profitability, mitigate bad debt and grow their businesses. By leveraging cutting-edge financial technology, today’s factoring companies can offer more access to working capital with lines of credit and commercial credit cards. In addition, modern factoring companies can give you more control over how your money is received and how you spend it, optimize profitability, mitigate bad debt and grow your businesses.
While traditional factoring companies may be able to advertise low rates, you’ll more than likely be missing out on the speed and robust complementary solutions that a modern factor offering similar rates will provide.
Non-Recourse Factoring
Another option to consider when shopping for invoice factoring is non-recourse factoring. Unlike traditional factoring, in non-recourse factoring, the factor assumes the risk of non-payment by the original debtor. If the debtor doesn’t pay the invoice, the business is not required to repay the factor. This method allows businesses to obtain immediate liquidity without the liability of potential non-payment by their customers. Not all companies that offer non-recourse factoring cover the same liabilities. You can find some things to look out for in our blog Top 8 Things to Understand Before Signing A Non-Recourse Factoring Agreement.
Conclusion
On average, most advertised factoring rates appear attractive. The challenge is understanding the total cost and value the factoring agreement provides. To effectively compare factoring rates, you must consider the total factoring cost, including all features, services, the advance rate, and total access to funds.
A factoring rate of 2.5% from a traditional factoring company that charges additional fees, has hidden rate formulas, and does not offer tiered discounts vs. a 2.5% factoring rate from a modern factoring company that provides significantly more services and greater access to funds is not the same value.
When shopping for an invoice factoring company to improve cash flow and support your company’s growth, look for cost benefits beyond a competitive factoring rate. Instead, consider the factor’s total cost of factoring, the advance rate offered, and additional support services included. Modern factoring companies at the leading edge of advanced technology offer the best rates providing maximum value at the best cost.
ABOUT eCapital
At eCapital, we accelerate business growth by delivering fast, flexible access to capital through cutting-edge technology and deep industry insight.
Across North America and the U.K., we’ve redefined how small and medium-sized businesses access funding—eliminating friction, speeding approvals, and empowering clients with access to the capital they need to move forward. With the capacity to fund facilities from $5 million to $250 million, we support a wide range of business needs at every stage.
With a powerful blend of innovation, scalability, and personalized service, we’re not just a funding provider, we’re a strategic partner built for what’s next.
