When Sarah Martinez signed with her first factoring company, she thought she’d found the perfect solution.
The sales rep quoted her a competitive 1.5% rate. She needed cash fast to cover payroll. She signed the contract, started factoring invoices, and watched her reliable customers pay like clockwork on day 28 or 29, right on their Net 30 terms.
Then came her first statement.
Instead of the 1.5% she expected, she was being charged 2.5%. When she called to ask why, the rep explained about “float days”, a 3-day clearing period buried in section 7.4 of her contract. Those three days pushed every single invoice into the next fee tier. What looked like a 1.5% rate was actually costing her 2.5%, nearly double what she expected.
Not all factoring companies are the same. Sometimes the lowest advertised rate isn’t the same as the total cost.
This guide will show you the five criteria that actually determine what you’ll pay, the hidden fees that can double your costs, and the red flags that should make you walk away.
Understanding True Factoring Cost
Many factoring companies lead with an attractive number: “Rates starting at 1.5%” or “As low as 2% per month.” But that advertised rate is just one piece of a larger puzzle.
The real cost formula:
Base rate + advance rate gap + float days + hidden fees + contract terms = Your actual cost
Industry Rate Ranges
Factoring rates generally range between 1% and 5% per month, depending on your industry, invoice volume, and customer creditworthiness. But the rate itself matters far less than the total structure around it.
The Float Days Problem
Float days are the most overlooked cost in factoring. They can unexpectedly add 1-2% to your annual rate.
What are float days?
Float days are a time allowance for check clearance that most factoring companies work into their contracts, which can bump you into the next tier of fees. Industry standard is three to five days.
Here’s how it works: When your customer pays an invoice, the factoring company doesn’t stop charging fees immediately. Instead, they add 3-5 “float days” to account for the time it takes the payment to clear. If you have tiered pricing (like 1.5% for days 1-30, then 2.5% for days 31-45), those extra days can push every invoice into a higher fee bracket.
The real-world impact:
Your customer pays on day 28 of their Net 30 terms. You’d expect to pay the 1.5% rate, right? With a 3-day float provision, that payment isn’t credited until day 31, and you’re charged the 2.5% rate instead.
Research from altLINE found that this seemingly small detail can increase annual financing costs by 42% for businesses with customers who pay consistently on time.
Here’s the math:
- Daily rate of 0.0333% = 12% annual rate (baseline)
- Add 3 float days = 13.2% annual rate (1% higher)
- Add 5 float days = 14.0% annual rate (2% higher)
Why don’t factoring companies mention this?
As altLINE notes, “Float is often left out of conversations and proposals, and often unrecognized by borrowers well into a factoring relationship.” Since float days directly increase the factor’s revenue, there’s little incentive to highlight them during the sales process.
The 5 Critical Selection Criteria for a Factoring Company
1. Industry Experience & Regulatory Status
Industry expertise matters.
It’s important to find a factoring company with expertise in your specific industry. Healthcare staffing companies operate on different payment cycles than trucking companies. Manufacturing has different challenges than wholesale distribution.
Ask directly: “How many active clients do you serve in my specific industry?” If they can’t give you a concrete number or examples, that’s a red flag.
Bank factor vs. independent factor.
Bank factors are FDIC-insured and regulated at both state and federal levels. Independent factors operate with far less oversight. Bank factors use their own capital to fund your invoices, while independent factors may need to borrow from third parties, adding another layer of risk and cost.
Working with a bank factor can actually improve your chances of qualifying for traditional bank financing down the road. The relationship demonstrates financial discipline and can open doors that independent factors can’t.
According to the International Factoring Association’s 2023 survey, 25% of factoring companies have been in business five years or less. When you’re entrusting your cash flow to a financial partner, experience and stability matter.
Questions to ask:
- “How many clients in my industry do you currently serve?”
- “Are you a bank factor? Are you FDIC-insured?”
- “How long have you been in business?”
2. Complete Fee Transparency
This is where many business owners get burned. The advertised factoring rate is only part of what you’ll actually pay.
Start with float days. Before you discuss anything else, ask:
- “How many float days are in your contract?”
- “When does the fee clock stop, when payment arrives or when it clears?”
- “Can you show me a total cost example that includes float days?”
Industry research shows that float days are usually stipulated in factoring contracts, but agents working for factoring companies rarely discuss them. If a sales rep seems surprised by the question or tries to gloss over it, that tells you everything you need to know about their transparency.
Beyond float days, demand an itemized list of every possible fee.
Here are the fees that can appear:
- Origination/setup fees: Typically $150-$500 or up to 1% of your credit line
- Monthly maintenance or administrative fees
- Per-invoice processing fees
- Wire transfer or ACH fees
- Credit check fees (some charge $35-$100 per customer credit check)
- Annual review fees
- Late payment penalties
- Early termination fees
- Standard termination fees
A transparent factoring company will provide all of this upfront, in writing, before you sign anything.
Red flags:
- Hidden fees buried in fine print
- Refusal to disclose the complete fee schedule
- “Fees vary by client” without explaining why
- Low introductory rates that expire after 30-90 days
Action step: Before signing, calculate your total annual cost including the base rate, all fees, and float days. Compare this total, not just the advertised rate, across different providers.
3. Contract Terms & Flexibility
This is where factoring companies lock you in, and where you can end up paying far more than you anticipated to get out.
Contract length and termination fees:
Factoring contracts typically run 1-3 years. If you need to exit early, termination fees are often calculated as your average monthly fee multiplied by the number of months remaining.
If your average monthly factoring fees are $2,000 and you have 18 months remaining, your early termination penalty could be $36,000. Even if the factoring relationship isn’t working, many business owners feel trapped because they can’t afford to leave.
Auto-renewal clauses:
Many factoring contracts include auto-renewal clauses requiring 30-90 days advance notice. Miss that window, and you’re locked in for another year, even if you wanted to switch providers.
Minimum volume requirements:
Some factors require you to submit a minimum dollar amount of invoices each month. If you don’t meet these minimums, you’ll be charged penalty fees. This becomes a problem when your business experiences seasonal slowdowns or you simply don’t need to factor as many invoices.
What to negotiate:
- Maximum 1-year initial contract term (especially as a first-time client)
- Remove auto-renewal clauses, or cap renewal to one additional year
- Eliminate or significantly reduce minimum volume requirements
- Maintain the right to choose which invoices you factor
- Cap early termination fees at a reasonable amount
Companies locking you into rigid 2-3 year contracts with no flexibility defeat the purpose of factoring.
4. Advance Rate & Funding Speed
The advance rate determines how much working capital you actually access, and the funding speed determines when you get it.
Understanding advance rates:
Many factoring companies advance 70-90% of your invoice value upfront. Top-performing factors offer advances up to 90-100%.
This percentage makes a real difference. On a $100,000 invoice:
- 80% advance = $20,000 tied up until your customer pays
- 100% advance = Full working capital available immediately
Funding speed benchmarks:
- Best-in-class: Same-day funding if invoices are submitted before noon
- Standard: 24-48 hours
- Red flag: 3-7 days or longer
5. Recourse vs. Non-Recourse Factoring
This determines who bears the risk if your customer doesn’t pay.
Recourse factoring (lower rates, typically 1.5-3%):
- You remain responsible if your customer doesn’t pay
- Best for businesses with reliable, creditworthy customers
Non-recourse factoring (higher rates, typically 3-5%+):
- The factor assumes the risk if your client doesn’t pay
- Costs more because the factor is taking on additional risk
- Often includes exclusions—many don’t cover disputes over product quality or service delivery
Be wary of factoring companies that make non-recourse factoring promises that sound too good to be true. If someone is offering non-recourse protection at recourse rates, there are likely significant exclusions buried in the contract.
6 Red Flags That Should Make You Walk Away
🚩 Red Flag #1: Won’t Disclose Float Days or Complete Fees
If a factoring company won’t clearly explain their float day policy or provide an itemized list of all possible fees, walk away. Float is often left out of conversations because it increases fees. A company that’s evasive about when the fee clock stops is telling you exactly how they plan to make money, by keeping you in the dark.
🚩 Red Flag #2: No Meaningful Experience in Your Industry
If they can’t name specific clients in your sector or demonstrate understanding of your industry’s unique payment cycles and operational challenges, you’re essentially asking them to learn on your dime.
🚩 Red Flag #3: Pressure to Sign Immediately
“This rate expires at 5 PM today.” “Sign now or you’ll have to go through the whole approval process again.” These are sales tactics designed to prevent you from comparing options, reading the fine print, and having an attorney review the contract. Any legitimate factoring company will give you time to make an informed decision.
🚩 Red Flag #4: Slow or Evasive Communication
Slow communication hinders your ability to get things done or take advantage of opportunities. If it takes days to get responses during the sales process, when they’re supposedly trying to earn your business, imagine how responsive they’ll be when you’re already under contract.
🚩 Red Flag #5: Rigid, Inflexible Contract Terms
Factoring companies that demand you factor every single invoice, lock you into 2-3 year contracts with high minimum volumes and no flexibility defeat the purpose of factoring. Factoring should provide agility and options, not create new problems.
🚩 Red Flag #6: Too-Good-to-Be-True Promises
Super low introductory rates that expire after 60-90 days, “guaranteed lowest rates” without disclosing float days, or non-recourse protection at recourse prices—these are all warning signs. If one factoring company is offering rates significantly below market while others are clustered in a similar range, there’s a reason.
Your Essential Questions Checklist
Before signing with any factoring company, get written answers to these questions:
- How many float days are in your contract, and when does the fee clock stop?
- What is your complete, itemized fee schedule?
- What is your contract length, and can I negotiate it?
- What are your early termination fees, and how are they calculated?
- Do you have minimum monthly volume requirements?
- Can I choose which invoices to factor?
- What is your advance rate for my industry and invoice volume?
- What is your average funding time?
- Are you a bank factor? Are you FDIC-insured?
- How many active clients do you serve in my specific industry?
Business owners need to run the numbers to fully understand what the effective rate will be once float days are added into the calculation. Don’t accept vague answers or promises to “discuss that later.”
Why Flexent Is Different
At Flexent, we built our business on a simple belief: funding shouldn’t come with surprises, hidden fees, or tricks buried in the fine print.
We’ve seen too many business owners get burned by factoring companies that prioritize their own revenue over their clients’ success. That’s why we do things differently.
The Flexent Advantage
Zero Float Days. We’re one of the only factoring companies that doesn’t charge float day fees. When your customer’s payment arrives, the fee clock stops, not 3-5 days later. This single difference can save you 1-2% annually compared to factors that build float into their contracts.
All Fees Disclosed Upfront. Before you sign anything, you’ll receive a complete, itemized breakdown of every fee you could possibly be charged. No surprises. No “oh, by the way” fees on your first statement.
Backed by 125 Years of Community Banking. Flexent is a wholly owned subsidiary of Chesapeake Bank, which has been serving businesses and communities since 1900. As an FDIC-insured bank factor, we’re regulated at both state and federal levels, providing security and stability that independent factors can’t match. We use our own capital to fund your invoices, ensuring reliability when you need it most.
Industry Expertise. We specialize in staffing, manufacturing, wholesale & distribution, trucking, government contractors, and IT consulting. We understand your business cycles, your customers’ payment patterns, and the unique challenges you face.
Same-Day Funding. We understand that when you need cash flow, you need it now, not in 3-5 business days.
Flexible Contracts. We don’t trap you in multi-year agreements with astronomical termination penalties. You should work with us because we’re earning your business every month, not because you can’t afford to leave.
Personal Service. You’ll work with a dedicated account manager who knows your business, not a call center where you explain your situation to a different person every time you call. We’re your partner, not just a vendor.
Many factoring companies add 3-5 float days that increase your annual cost by 1-2%. We don’t. That’s the kind of transparency and fairness that should be standard in this industry.
Ready to Experience Transparent Factoring?
You deserve a factoring partner that’s as invested in your success as you are.
Questions? Call us at 804-693-2796 to speak with a factoring specialist.
Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or professional advice. Factoring rates, terms, and conditions vary by provider, industry, and individual circumstances. Examples and calculations are illustrative and based on industry research. We recommend consulting with qualified advisors before entering into any factoring agreement. Flexent provides customized quotes with all fees disclosed in writing before you sign. Final terms are subject to credit approval and will be clearly outlined in your agreement.