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Factoring commission
Also called factoring fee, discount fee, factoring rate.
The factor's charge for buying an invoice, quoted as a percentage of face value for a defined period and charged again for each further period the invoice stays unpaid.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Three common structures:
- Flat. One percentage for the life of the invoice, regardless of when it pays. Simple, and priced for the factor's expected DSO.
- Tiered. A percentage per period, stepping up as the invoice ages. Most common structure in the market.
- Daily or prime-plus. A per-day accrual, or an interest rate on funds employed plus a separate service fee. Common in larger and bank-owned facilities and usually the cheapest structure for a fast-paying ledger.
The commission is deducted from the reserve at settlement rather than billed, so it is easy not to notice. Everything else lives in the fee schedule: wire fees per transfer, lockbox charges, credit check fees per new customer, monthly minimums, audit fees, and a misdirected payment fee if your customer pays you instead of the factor.
Where this one catches people
A rate quoted "per 30 days" against a ledger that pays at 55 is charged twice, so the effective cost is double the headline. Two questions decide what a quote actually means: what is the period, and does the clock start on the purchase date or the invoice date. Starting at invoice date on invoices you submit a week after billing can add a whole period on slower accounts.
Worked through
A $50,000 invoice under a tiered structure charging 1.5% per 30 days, paid on day 52, crosses into a second period and costs 3%, or $1,500. The same invoice under a daily accrual of 0.05% per day costs 2.6%, or $1,300. The tiered quote looked cheaper on the sheet.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Factoring commission — common questions
What does factoring commission mean?
The factor's charge for buying an invoice, quoted as a percentage of face value for a defined period and charged again for each further period the invoice stays unpaid.
Where does factoring commission catch people out?
A rate quoted "per 30 days" against a ledger that pays at 55 is charged twice, so the effective cost is double the headline. Two questions decide what a quote actually means: what is the period, and does the clock start on the purchase date or the invoice date. Starting at invoice date on invoices you submit a week after billing can add a whole period on slower accounts.
Is factoring commission the same as an interest rate?
No. It is a multiplier applied once to the amount funded, with no time dimension. An interest rate is charged per unit of time on a balance that changes.
Which products does factoring commission apply to?
Invoice Financing.
Is there a worked example of factoring commission?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside factoring commission?
Advance rate, Days sales outstanding, Discount rate, Fee schedule, Float.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.