The advertised rate is a marketing number. The number that matters is what actually lands in your account, and the gap between the two is where the industry makes its living.
The arithmetic
Take a carrier running $100,000 a month in invoices. Two offers:
| Factor A | Factor B | |
|---|---|---|
| Advertised rate | 1.5% | 2.0% |
| Factoring fee | $1,500 | $2,000 |
| Reserve held (10%) | $10,000 held back | $0 |
| ACH fee ($15 × 50 fundings) | $750 | $0 |
| Invoice processing ($3 × 50) | $150 | $0 |
| Monthly minimum shortfall | $0–$500 | $0 |
| Cash cost per month | $2,400+ | $2,000 |
Factor A and Factor B are illustrations, not named companies. For the record, Capital Hart charges a flat fee on each ACH or wire transfer; it is printed on the agreement beside the rate, which is the whole point of this article.
Factor A advertises a rate 25% lower and costs at least 20% more — before you account for the $10,000 of your own money sitting in their reserve account, which is the part that actually hurts when fuel is due.
Run this on your own volume before every renewal. It takes four minutes and it is the single highest-paid four minutes in your business.
Eleven line items to find
Go through the rate sheet and the agreement with this list. Write the dollar amount next to each one — including the zeros.
- Reserve percentage. How much of every invoice is withheld, and what triggers its release.
- ACH / wire / same-day fee. Per funding, and it compounds fast if you fund daily.
- Invoice or upload fee. Charged per invoice submitted.
- Monthly minimum. The fee you pay for a slow month.
- Credit check fee. Per check, or capped per month.
- Application / set-up fee. Charged before you have funded a single load.
- Software or portal fee. Increasingly common, rarely mentioned on a call.
- Aging / carry fee. An extra percentage once an invoice passes 30, 60 or 90 days.
- Chargeback terms. When, and for what reasons, an invoice can be pulled back out of you.
- Misdirected payment penalty. What happens if a broker pays you instead of the factor by mistake.
- Termination fee and notice period. Covered below, and the most expensive one on the list.
The one question
“On a $2,000 invoice, funded today, tell me the exact dollar amount that hits my account.”
One number, in dollars, no percentages. A factor with clean pricing answers it in three seconds. A factor with a fee schedule will start explaining. The length of the pause is the information.
Term and exit
The last page is usually the expensive one. Look for the initial term, the auto-renewal window, the required notice period, and the early termination fee. A twelve-month term with a 60-day notice window and a 3% exit fee means that in practice you are committed for fourteen months and it costs real money to leave — which is precisely the point of writing it that way.
A one-year term is not the problem. A one-year term you did not know you signed is. Ours is one year, and the term, the notice window and the exit terms sit on the first page. Ask any factor to show you where theirs are before you sign.
Freight Factoring 101