Comparing factoring quotes when every factor prices differently

Factoring quotes are not standardised, and the headline percentage is close to meaningless on its own. The same invoice under three quotes can produce three different answers, and the cheapest one changes depending on how fast your customers pay.

The four structures you will meet

Three quotes, one invoice

Illustrative only — a $25,000 invoice, and three quotes you might be holding at once. Constructed figures, not market rates.

Quote A: 2.5% for the first 30 days, then 0.05% per day.
Quote B: 1% per 10 days or part thereof.
Quote C: 3% for the first 45 days, then 1% per 15 days or part thereof.

Every quote wins somewhere. Nothing about the quotes changed between those three cases — only the payment date. The lowest headline number, B at 1%, is the most expensive of the three at both 45 and 75 days.

The only way to compare them

Use your own aging report. You already have the data.

1. Pull the last twelve months of paid invoices with issue date and payment date.
2. Calculate actual days to pay for each. Not your terms — actual.
3. Build the distribution: what share paid inside 30 days, 31 to 45, 46 to 60, 61 to 90, beyond.
4. Run each quote's fee formula across that distribution.
5. Compare the total annual cost in dollars.

This takes an afternoon in a spreadsheet and it is the single most valuable thing you can do before signing a factoring agreement. It also tells you something else worth knowing: which structure penalises your worst-paying customers hardest.

What that calculation looks like when you do it

The quote with the lowest headline number costs $50,325 a year more than the one with the highest. The distribution did all the work, and the distribution is in a report you already have.

Then run it twice more, once assuming everything pays ten days later and once ten days earlier. If the ranking survives both, you have a real answer. If it flips, you are choosing a bet on your customers rather than a price.

The advance rate changes the denominator

The discount is charged on face value. The cash you get is the advance. A 2% discount at a 90% advance rate is 2% of face against 90 cents of cash — about 2.22% of the money that actually arrived. At an 80% advance it is 2.5% of the cash.

Two quotes with the same discount and different advance rates are not the same price, and the reserve you are waiting on is working capital you do not have until the customer pays. Ask for the advance rate and the discount together, then divide one by the other before you compare anything.

The costs that are not in the headline

Add these to every quote before comparing:

• Wire and ACH fees, per transaction, multiplied by your funding frequency.
• Monthly minimum fees, and the volume required to avoid them.
• Set-up, due diligence or facility fees.
• Credit check fees per new customer.
• Lockbox, portal or software fees.
• Chargeback and rebilling fees.
• Field exam or audit fees.
• Early termination fees and the notice period.
• Same-day funding surcharges.

A quote with a low discount and a monthly minimum you will miss half the year is not a low quote.

Ask for the same worked example from every factor

Send each one identical wording:

"On a $25,000 invoice, advance rate as quoted, please show me in dollars: the amount I receive on day one, every fee charged if my customer pays on day 30, on day 45 and on day 60, and the reserve released in each case."

Three responses in the same format, in dollars, comparable side by side. A factor that will not answer in dollars has told you something about how the relationship will run.

One structural point

Do not compare a factoring quote to a term loan APR without converting both onto the same basis and showing the conversion. A discount charged per invoice has no annual dimension until you attach your own days-to-pay assumption to it. Attach it explicitly, write the assumption down, and then the comparison is honest. Skip that step and you are comparing two numbers that measure different things.