Apr 13, 2022

Understanding the True Cost of Invoice Factoring: A Comprehensive Guide

Ernane Iung

Ernane Iung – President and Owner of ei Funding

When new clients approach ei Funding about growing their business, one of the questions that’s always top of mind is: “how much does invoice factoring cost?” Business owners who’ve never worked with a factor don’t always know what to expect, and many people have misconceptions about the fees involved in invoice factoring, often believing it to be a more expensive option compared to bank financing.

Here, we’ll debunk those misconceptions, help you understand just how much this service costs, and explain why it could be a more profitable option for your business’s needs.

What Is Invoice Factoring?

Invoice factoring is a financial service where businesses sell their unpaid invoices to a factoring company and they advance you the invoices’ value up to 80 – 90%. The factor then handles payment collection from your customers for these invoices, paying you the remaining value once the balance is settled, minus a small percentage for the service, costing only pennies on the dollar. This arrangement provides immediate working capital, helping businesses manage cash flow more efficiently without accruing new debt.

Detailed Example:

Consider a scenario where your business issues a $10,000 invoice. A factoring company might offer to buy this invoice for an advance of 85%, equating to $8,500. Upon your customer’s payment, the factoring company deducts a 3% fee ($300) and pays you the remaining balance. Thus, for a $10,000 invoice, you receive $9,700 in total, allowing for immediate cash flow with a minimal fee.

Pros and Cons


  • Quick access to cash.
  • Improved cash flow.
  • Easier qualification criteria.
  • No need for collateral.


  • Not suitable for all business types.
  • Customers may not be accustomed to dealing with a third party for payment matters.

The bottom line is that with invoice factoring, businesses only end up paying a few pennies for each dollar factored.

ei Funding is committed to a straightforward and transparent rate structure that’s designed to help you keep more of your hard-earned money. Every business partnership is different, so the exact percentages will vary, but for most businesses (regardless of scale or industry) invoice factoring is one of the most affordable and reliable financing options available.

So What Is the Actual Cost of Factoring?

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Factoring fees, usually ranging from 1% to 5%, depending on variables like invoice size, customer creditworthiness and your business’s financial stability. Understanding these fees is crucial in evaluating the cost-effectiveness of factoring for your business.

Let’s say your business has partnered with ei Funding to get cash advances on your invoices, one of which is worth $1,000. When we factor said invoice, we’ll advance you 80 to 90% of its face value, meaning your company will get up to $900 of cash to continue growing and operating your business.

At this point, your work is done — your factoring company will handle collecting on the invoice from your customer. Once the customer has paid us, we’ll pay you the remaining 10 to 20% of the invoice value, minus the factoring fees. For that $1,000 invoice, those fees are typically around $25 to $35 — that’s just 2.5 – 3.5% of the original invoice amount.

So that $900 of cash you received and were able to immediately put into funding payroll, equipment upgrades and more?

How Does the Cost of Invoice Factoring Compare to Other Financing Options?

Unlike traditional loans that often require extensive documentation and collateral, invoice factoring is streamlined and typically requires no additional security. Additionally, no new debt is incurred. It’s an easier and more flexible solution, especially for businesses that might not qualify for standard loans.

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Want to learn more about the different types of financing options available? Check out our blog, Comparing Your Business Cash Advance Options: Which Is Best?

With invoice factoring, you don’t need to worry about interest rates, daily withdrawals or having to pay off all the money borrowed plus interest at the end of the term loan. As far as contracts go, you’re not locked in if you end up needing to pursue different funding methods. You can cancel your agreement with ei Funding at any time, so long as you do so in writing 30 days before your intended stop date.

As mentioned, invoice factoring is not considered debt because it involves the sale and purchase of your outstanding invoices for goods/services between your business and the factor. There are no hidden credit card fees, tricks, or unexpected withdrawals — just simple predictability and consistent working capital.

Interested in how invoice factoring can benefit your business? Contact ei Funding for a personalized quote and explore how our transparent, competitive rates can help improve your cash flow.

Learn More about Invoice Factoring


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