When construction subcontractors research factoring, one of the first questions they ask is about cost.
Factoring pricing is not structured the same way across all providers and it works differently from traditional loan interest. Instead of charging interest on borrowed capital, factoring companies charge a fee based on the invoice value and how long it takes for the general contractor or project owner to pay.
Because construction payment timelines can involve multiple approval stages and project payment flows, understanding how factoring pricing works helps subcontractors compare programs accurately and evaluate factoring based on total value rather than rate alone.
Subcontractors who are still researching how to evaluate factoring companies can review the Subcontractor How to Evaluate Guide [HE] before comparing pricing structures.
When a subcontractor submits an invoice for funding, the factoring company advances a portion of the invoice value and charges a fee for providing that working capital. The fee is typically based on the invoice amount and how long it takes the general contractor or project owner to pay.
Because construction receivables may move through project approval processes before payment is released, factoring companies evaluate both the expected payment timeline and the credit profile of the business responsible for paying the invoice when structuring pricing.
Construction payments often move through project approval processes before funds are released to the subcontractor. Factoring companies evaluate how long invoices are expected to remain outstanding when structuring pricing. Invoices tied to faster approval cycles and shorter payment timelines generally cost less to factor than those moving through extended approval processes.
Because subcontractor receivables are paid by general contractors rather than project owners directly, factoring companies evaluate the financial strength and payment history of the general contractor. Stronger general contractor credit represents lower risk which is typically reflected in more favorable pricing and advance rates. Subcontractors working with a mix of general contractors may find that pricing varies depending on each contractor’s credit profile.
Factoring companies often structure programs based on expected invoice volume and the predictability of receivable flow. Subcontractors with consistent, ongoing project billing may have more flexibility in how their programs are structured than those with irregular or seasonal submission patterns.
Construction receivables may involve progress billing approvals, lien waivers, or project verification documentation. Factoring companies evaluate these documents before advancing funds. Subcontractors with well-organized, complete documentation typically experience faster verification and more predictable funding timelines.
When a subcontractor factors an invoice, the factoring company advances a portion of the invoice value upfront often 80 to 90 percent. The remaining balance is held as a reserve. Once the general contractor pays, the reserve is released after the factoring fee is deducted. Understanding how advance rates and reserves are structured helps subcontractors evaluate the true cash flow impact of each factoring program.
Many subcontractors initially focus on advertised factoring rates when comparing providers. However, pricing alone does not always reflect how a factoring program will function within the operational realities of construction projects.
Construction industry experience, invoice verification speed, how lien waivers are handled, and what additional services are included all affect the long-term value of a factoring relationship. A slightly lower advertised rate with poor service or slow verification may deliver less operational value than a program priced slightly higher with strong construction expertise.
Common misunderstandings about factoring cost including why advertised rates often differ from actual program cost are addressed in the Subcontractor Factoring Misconceptions Guide [MS].
When comparing factoring companies, subcontractors should evaluate programs across several dimensions beyond pricing:
For additional questions about how factoring works within construction billing and project payment structures, review the Subcontractor Factoring FAQ [FAQ].
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