Flat-rate and tiered factoring fees can cost very different amounts on the same invoice, and a fair pricing comparison has to run both at the number of days your customer takes to pay. A flat fee charges one percentage whether the invoice is paid on day 20 or day 80, while a tiered fee starts lower and climbs as the invoice ages. We price one $50,000 invoice both ways at 30, 60 and 90 days and convert each into an effective monthly and annual cost.
How flat and tiered factoring fees are calculated
When you factor an invoice, the factor buys it, pays you an advance (a share of the face value) and holds the rest as a reserve until your customer pays. Its charge comes out of that reserve. California's disclosure regulations define the factoring fee as any fee charged to process the transaction plus the difference between the invoice's face value and the purchase price (10 CCR section 900, DFPI final text, checked October 2026), so count processing charges along with the quoted percentage.
A flat fee is one percentage of face value, charged once. At 3.5% flat, a $50,000 invoice costs $1,750 whether the customer pays in 12 days or 70. Flat offers often cover a set window, and the agreement says what happens after it, such as an added charge or, on recourse terms, a request that you buy the invoice back.
A tiered fee (also called time-based or per-period pricing) starts with one percentage for an initial period and adds an increment for each later period, in brackets such as days 1 to 30 and 31 to 45 or in steps every 10 days. The cost depends on the day your customer's payment arrives, so the final fee isn't known until the invoice closes.
| Example assumption (illustrative only) | Value |
|---|---|
| Invoice face value | $50,000 |
| Customer terms | Net 30 |
| Advance rate | 85%, so $42,500 upfront and $7,500 in reserve |
| Flat offer | 3.5% of face value for payment any time within 90 days |
| Tiered offer | 2% of face value for days 1 to 30, plus 1% for each additional 15 days or part of 15 days |
How do flat-rate and tiered factoring fees compare on the same invoice?
The reserve you get back is $7,500 minus the fee, so at day 90 it's $5,750 under the flat offer and $4,500 under the tiered one.
| Customer pays on day | Flat fee | Tiered fee | Lower cost |
|---|---|---|---|
| 30 | 3.5% ($1,750) | 2% ($1,000) | Tiered by $750 |
| 31 | 3.5% ($1,750) | 3% ($1,500) | Tiered by $250 |
| 45 | 3.5% ($1,750) | 3% ($1,500) | Tiered by $250 |
| 46 | 3.5% ($1,750) | 4% ($2,000) | Flat by $250 |
| 60 | 3.5% ($1,750) | 4% ($2,000) | Flat by $250 |
| 75 | 3.5% ($1,750) | 5% ($2,500) | Flat by $750 |
| 90 | 3.5% ($1,750) | 6% ($3,000) | Flat by $1,250 |
Under these assumptions the crossover sits between day 45 and day 46, and the gap widens every 15 days after that. Notice the jump between day 30 and day 31, too: one extra day moves the tiered invoice into the next bracket and adds $500. That's why the day-count questions in the checklist below matter.
Turning each fee into an effective monthly and annual cost
The percentage on an offer is a share of face value, but you only had $42,500 of the factor's cash, and only while the invoice was open. Three steps put offers on the same footing:
- Divide the fee in dollars by the cash advanced. That's your cost per dollar used.
- Divide that result by the days outstanding divided by 30 to get a monthly cost.
- Multiply the step 1 result by 365 divided by the days outstanding to get a simple annualized rate.
For the flat offer paid at day 30, $1,750 divided by $42,500 is 4.12% for one month, or about 50.1% annualized. Paid at day 90, the same fee works out to 1.37% a month and about 16.7% a year.
| Days outstanding | Flat: monthly | Flat: annualized | Tiered: monthly | Tiered: annualized |
|---|---|---|---|---|
| 30 | 4.12% | 50.1% | 2.35% | 28.6% |
| 60 | 2.06% | 25.0% | 2.35% | 28.6% |
| 90 | 1.37% | 16.7% | 2.35% | 28.6% |
Because each tier in our example adds the same 1% per 15 days, the tiered offer's time cost holds at 2.35% a month on each bracket's last day, though early days in a bracket cost more (day 31 works out to about 3.42% a month). The flat fee's time cost falls the longer the customer takes, which is why flat pricing tends to favor slow payers and tiered pricing fast ones.
This simple annualization ignores compounding and the reserve's timing, so it won't match a regulated APR disclosure to the decimal, but it ranks offers fairly. See factor rate vs. APR for why the two measures differ.
▦Estimate your invoice factoring paymentsRun the numbers in the invoice factoring estimator →▸Which fee structure fits how fast your customers pay?
Start with how your customers have paid, whatever your invoice terms say. Pull the paid-invoice history for each customer you plan to factor and work out the average days from invoice to payment. That's each customer's days sales outstanding (DSO), and it's the day count to price both offers at.
| How your customers usually pay | Structure that priced lower in our example | What to check |
|---|---|---|
| Within terms, under about 45 days | Tiered | Bracket length, partial-period rules, day-count method |
| Mixed or hard to predict | Run both on your real customer mix | Whether a cost known upfront is worth more to you |
| Typically 60 to 90 days | Flat | How long the flat window lasts, charges after it, recourse date |
Most businesses factor a mix of customers, so price the mix. Suppose you factor $100,000 a month from a customer that pays in about 25 days and $50,000 from one that pays in about 70. At 3.5% flat the monthly cost is $5,250. Under the tiered schedule it's $2,000 (2% of $100,000) plus $2,500 (5% of $50,000), or $4,500, so tiered saves $750 a month.
Now run the stress test. If the fast customer slips to 40 days, its bracket moves to 3% and costs $3,000, bringing the tiered total to $5,500, which is $250 a month more than the flat offer. Before you sign, rerun the mix with every customer paying 15 days slower than usual, and pick the offer you can live with in both cases.
Some agreements price different types of invoices differently, and California's rules call for a separate example-transaction disclosure table for each type when the finance charge, APR or term varies by type (10 CCR section 951). Ask whether your slow accounts can go on a different schedule.
What disclosure rules require on factoring pricing
California. The DFPI's commercial financing disclosure regulations have been in effect since December 9, 2022. Section 912 sets out a six-row factoring disclosure table that includes "Estimated Annual Percentage Rate (APR)," "Finance Charge" and "Estimated Term," and section 941 says that for a single-invoice disclosure the provider shall assume it receives full payment on the date the invoice becomes due and payable (DFPI final regulation text). Section 921 explains how an offer is measured against the $500,000 threshold. In 2023, SB 33 (Chapter 376) deleted the January 1, 2024 sunset on the requirement to show the total cost of financing as an annualized rate (DFPI 2023 chaptered legislation, checked October 2026).
New York. The Department of Financial Services adopted its disclosure regulation on February 1, 2023 for commercial financing in amounts of up to $2,500,000, with factoring among the covered types. Under 23 NYCRR section 600.12, the factoring table includes an estimated APR with a short explanation of the payment-timing assumption, and section 600.13 requires the provider to assume full payment on the due date for a single-transaction disclosure (checked October 2026).
That due-date assumption matters most for tiered pricing. A late payment leaves a flat fee's dollar cost unchanged but pushes a tiered fee into higher brackets: in our example, a Net 30 invoice paid at day 60 costs $2,000 against $1,000 on the due date. Whether these rules cover your deal depends on your state and the transaction, so ask any factor to price its fee at your customers' real payment days too.
Questions to ask before you sign a factoring fee schedule
Get answers in writing, and see our factoring agreement guide for where these terms usually sit.
- Is the percentage charged on the invoice's face value or on the advance?
- Does the day count start on the invoice date or the funding date, stop when payment arrives or when funds clear, and use calendar or business days?
- How long is each tier, and does a partial period count as a full one?
- For a flat fee, how many days does it cover, and what happens after that?
- What other charges apply, such as application, processing, wire, monthly minimum or early termination fees?
- When is the reserve released, and can it be held against other invoices you've sold?
- Is the deal recourse or non-recourse, and on what day would a buyback apply?
For the wider list of factoring charges, see invoice factoring rates and fees. If your customers routinely take 60 days or more, compare factoring with a business line of credit as well.
EQ Funding routes one application for invoice factoring to lenders and factors who compete for the deal, so you can run each offer through these steps side by side. Approval and pricing depend on each factor's review of your business and your customers' credit.