Glossary · Factoring
Advance rate
Also called: Advance, Advance percentage
Definition
The advance rate is the share of an invoice's face value a factor pays the carrier up front; the rest is held in reserve until the debtor pays.
Advance rates are set per client and sometimes per debtor. On a $2,000 invoice with a 90% advance, the carrier gets $1,800 when you buy the invoice, and the remaining $200 sits in reserve. When the broker pays, you take your fee and any chargebacks from the reserve and release the rest.
The gap between face value and the advance is your cushion. It absorbs short pays, lumper disputes, detention the broker refuses to pay, and the occasional invoice that never pays at all. The higher the advance, the less room you have before a bad invoice becomes your loss.
Some factors advertise a 100% advance and take the fee up front, with no reserve. Carriers should compare offers on net cash and total cost, not the headline rate. The factoring cost calculator does that math.