Free tool: educational, not legal advice
Factoring proposal decoder
The short answer
The cheapest factoring proposal is the one with the lowest total cost at your actual volume and payment speed, not the lowest headline rate. This decoder prices up to three proposals on the same assumptions, ranks them by effective annual cost, and flags contract terms that cost owners money: auto-renewals, monthly minimums, termination fees, short recourse windows and stacked add-on fees.
Is this legal advice?
No. The decoder is an educational tool. It estimates costs from the terms you enter and points out common problem areas. It does not review your contract, interpret its language or tell you whether to sign. Factoring agreements are binding contracts; have an attorney review any agreement before you sign it.
If a proposal does not state one of the terms below, leave it at zero and treat the gap as a question to ask the funder in writing.
How does the decoder rank proposals?
Every proposal is priced at the same monthly volume and the same average days to pay. For each, the decoder adds the discount fees, an estimated minimum-volume shortfall charge, monthly service, ACH and lockbox fees, and one-time fees spread across the initial term.
It divides that monthly total by the cash advanced each month and annualizes it: total monthly cost ÷ monthly cash advanced × 365 ÷ days to pay. Proposals are ranked from lowest to highest effective annual cost. Shortfall is estimated as the proposal’s fee rate applied to the unused minimum, a common contract formula; your contract may differ.
Which terms trigger a red flag?
Flags are rules of thumb drawn from common factoring contract pitfalls, not judgments about any funder:
- Auto-renewal with a long notice window. Sixty or more days’ notice makes it easy to miss the exit and roll into another term.
- Volume below the monthly minimum. Shortfall fees charge you for invoices you never factored.
- Termination fees above 3% of the facility. They make switching factors or refinancing expensive. See how a factor buyout handles this.
- Recourse periods under 60 days when customers pay slowly. Invoices that age past the window can be charged back to you.
- Three or more add-on fees, or add-ons above a quarter of total cost. The headline rate no longer tells you the price.
What should every factoring proposal spell out?
A complete proposal states the advance rate, the fee schedule and how it is billed, the reserve, recourse terms, the facility limit, any minimums, the term, renewal and termination terms, and every fee by name. If a proposal leaves these out, ask for them in writing before comparing. Our factoring proposal checklist walks through each item, and how to choose a factoring company covers what matters beyond price.
Questions people ask
Why not just pick the lowest rate?
Because billing increments, minimums and add-on fees can outweigh a lower headline rate. A 1.5% headline rate that adds 1% every 10 days after day 30 costs 4.5% on an invoice paid in 60 days, more than a flat 2% per 30 days prorated daily (4%). The decoder prices everything on your numbers so the comparison is fair.
Is anything I enter sent anywhere?
No. The decoder runs entirely in your browser. Nothing you type is uploaded, stored or logged, so you can enter real terms from a proposal you have in hand.
What is a recourse period?
In a recourse facility, if a customer has not paid within a set number of days, often 60 to 90, you must buy the invoice back or replace it. Short windows combined with slow-paying customers lead to frequent chargebacks. Read recourse vs. non-recourse factoring for more.
How is the termination fee measured?
Most proposals express it as a percentage of the facility limit, sometimes stepping down over the term. Some use a flat dollar amount or the fees you would have paid through the end of the term. Enter the percentage stated and ask the funder how it is calculated.
Can I negotiate the flagged terms?
Often. Notice periods, minimums, termination fees and add-on fees are commonly negotiable, especially for clean files with strong customers. Getting more than one proposal is the simplest way to create leverage.
Where do I get proposals to compare?
You can get matched with funders that fit your receivables and size, from $50K to $25MM. Bring the proposals back here to compare them side by side.
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