Why AR Factoring Costs Range from 1% to 4%+ Per Month

The Question Every Business Owner Asks

I was on a call yesterday with a prospective client about accounts receivable (AR) financing—also known as factoring. And they asked the question everyone asks:

Why Such a Broad Range?

The answer lies in understanding the risk factors involved. Not all invoices are created equal. Not all businesses operate the same way. And not all payment risk is identical.

Risk Factor #1: Your Industry

Construction: Higher Risk, Higher Rates

Result: Higher factoring rates (typically 2.5%–4%+ per month).

Medical Billing: Complex Collections, Complex Pricing

Result: Higher factoring rates (typically 2%–4% per month) due to collections complexity and default risk.

Staffing: Lumpy Payment Risk

Result: Moderate to higher factoring rates (typically 1.5%–3% per month).

Manufacturing / Distribution / Services: The Lower-Risk Model

Result: Lower factoring rates (typically 0.75%–1.5% per month).

Risk Factor #2: Customer Quality & Payment Behavior

Beyond industry, the specific customers you invoice matter enormously:

Strong customers with 30-day terms = Lower rates

Uncertain customers with 60–90 day terms = Higher rates

Customers with history of late payments = Much higher rates

Customers with disputes or defaults = Potentially unfactorable

A Reality Check: Are You Overpaying?

This especially applies if:

→ Your customers are creditworthy and pay consistently

→ Your invoices are clean and dispute-free

→ Your business has established relationships and track record