There are three parts to a factoring transaction.
The first is the ADVANCE. This is the percentage of the face value of an invoice submitted to be factored. It can be typically 80%, for instance $80,000 on a $100,000 invoice. But this can change based on certain industries and the strength of the account debtor (your customers.) Trucking industry invoices have higher advances while the construction industry might have lower advances especially for sub-contractors.
The second part is the RESERVE. This is the percentage that was not wired to you, the remainder of the total invoice. The reserve is held back for a few reasons. If an invoice is not paid in full, a credit was taken out, then that amount is reimbursed from the reserve account. The primary reason there is a reserve account is because the cost of factoring is calculated by how long the advance is outstanding. This means if the customer takes longer than 30 days to submit payment of the invoice to the factor, the service charge continues to accrue. So the factor will not know how much to charge until the invoice has been paid. The service charge is deducted from the reserve and the remainder is paid back to you to complete the transaction.
The last part is the SERVICE CHARGE. This is sometimes misunderstood as an interest rate. There is interest on the money advanced included but the entire fee is a mixture of cost of funds to the factoring company, services provided like checking credits, verifying invoices and the actual funding process. This is also known as the discount fee. The fee will be determined at the beginning of the factoring relationship and included in the Factoring Purchase and Sale Agreement.