What does freight factoring cost, and what fees come with it?

What goes into the price of freight factoring?

A factor pays you most of an invoice now and keeps the rest until your customer pays. The price is not one number. It is the sum of several, and any of them can matter more than the one on the sales page:

• Factor fee (discount rate). Either a flat percentage of the invoice, or a percentage that grows for each period the invoice stays unpaid.
• Advance rate and reserve. The advance is the share paid up front. The rest is the reserve, held until the customer pays. The reserve is your money, not a fee, but fees usually come out of it, and a lower advance means less cash today.
• Add-on fees. Wires or ACH, invoice submission, credit checks on new customers, lockbox or mail fees, and fuel advance fees.
• Minimum volume. A required amount of invoices each month, with a charge if you fall short.
• Term and exit. Contract length, automatic renewal, notice to leave, and early termination fees.

The Comptroller of the Currency describes factoring as the direct purchase of accounts receivable at a discount. The fee is that discount plus whatever service charges the contract adds. For the full cycle, read how freight factoring works.

What does a flat fee versus a per-period fee look like?

This is where the same headline number turns into different costs.

Example only. The numbers below are invented to show the math. They are not typical rates, offered rates, or rates from BreadRoute or any provider.

You factor a $1,000 invoice at a 90% advance. You receive $900 now and $100 stays in reserve. Add-on fees are $120 a month across $20,000 of invoices, which is $6 per $1,000.

• Contract A: flat 3%. The fee is $30 whenever the customer pays. With add-ons, total fees are $36, and the reserve releases $64. You keep $964.
• Contract B: 1% for each 10 days or part of 10 days the invoice is unpaid. The fee depends on how long your customer takes.

Contract A costs the same $36 whether the customer pays in 28 days or 62. Contract B matches it at 28 days and costs more as customers get slower. If most of your customers pay in 30 to 45 days, a per-period contract could cost more than its headline suggests. If most pay in two weeks, the per-period contract could cost less. The only way to know is to enter your own customers' payment times.

Our calculator measures an annualized cost: the total fee divided by the cash advanced, scaled to a year. For Contract A at 35 days, the $36 on $900 advanced works out to about 42% annualized. For Contract B at 35 days, the $46 works out to about 53%. That is a comparison figure, not a disclosed APR. It shows why a short wait and a low-looking percentage can still add up over a year of invoices.

How do I work out my own factoring cost?

Use the numbers from an actual offer: your monthly invoice volume, the advance rate, whether the fee is flat or per period, the period length, how many days your customers really take to pay, and any other monthly fees. The calculator below shows the fee per $1,000 invoiced, the reserve released, what you keep, the fees per month, and the annualized cost. Its defaults are examples, not market rates, and it does not model recourse, chargebacks, or minimums. You can also open the factoring cost tool on its own page.

Two honest inputs make it useful. Use your customers' real payment times, not the terms on the invoice. And enter every recurring fee, not just the headline one.

What fees and contract terms change the real cost?

Look beyond the fee for these:

• Minimum volume. If a contract requires a monthly amount of invoices and you submit less, some charge a fee on the shortfall. Example only, invented numbers: a contract requires $10,000 a month at 3%, and you factor $6,000. If it charges the fee on the $4,000 gap, that is another $120 for invoices you never sold. Ask what happens in a slow month, and whether a minimum is in force from the first month.
• Early termination fees and automatic renewal. Ask how many days of notice you must give and what leaving early costs.
• Spot versus contract. Spot factoring lets you pick which invoices to sell. A contract commits you to selling all invoices, or all invoices to certain customers, for a term.
• Reserve and release timing. Ask when the reserve is released after the customer pays, and in what order fees come out.
• Chargebacks. What happens to the advance if a customer short-pays or disputes, and which fees continue on a charged-back invoice.
• Credit checks and setup. Whether new-customer checks, setup, or onboarding carry a charge.

The FTC's advice for small business financing is to read the contract, not the advertising, and to compare what you net after every fee with what you owe in total. Treat "no hidden fees" as a claim to verify. Ask for every fee in writing. And any provider that wants money from you before it has issued terms is, in the FTC's words about up-front fees, "a cue to walk away."

Do states require factoring costs to be shown?

Some do, for some providers. California's commercial financing regulations define a "factoring fee" as any fee charged to process the transaction plus the difference between the invoice's face value and the purchase price, and they refer to factoring disclosures under the Financial Code (10 CCR 900). New York's Financial Services Law lists a factoring transaction among the kinds of commercial financing it covers (Financial Services Law 801).

Thresholds, exemptions, and who has to comply vary by state, and many states have no such rule. If you are given a disclosure, use it. If you are not, ask for the fee schedule and an example showing what you would receive and owe on a real invoice.