An advance rate is the percentage of an invoice's value that a financing company pays you up front. The remainder, often called the reserve, is released when your customer pays, minus fees. It is the number that tells you how much cash you actually receive on day one.
A simple illustration
The numbers below are for illustration only. Actual advance rates depend on your customers and on the provider.
| Step | What happens | Example |
|---|---|---|
| Invoice | You invoice your customer. | $10,000 |
| Advance | You receive the advance rate times the invoice. | 85% advance = $8,500 up front |
| Reserve | The rest is held until your customer pays. | $1,500 |
| Payment | Your customer pays the invoice. | $10,000 collected |
| Release | The reserve is released to you, minus fees and any adjustments. | $1,500 less fees |
What affects the advance rate
- Customer credit. Stronger, more established customers generally support a higher advance than newer or weaker ones.
- Payment history. Customers who pay consistently and on time are easier to advance against.
- Concentration. Heavy reliance on one customer can affect how a facility is structured. See what factoring companies review before approval.
- Disputes and credits. If invoices are often adjusted or contested, less of each invoice is safely advanced.
The advance rate is not the cost
A higher advance rate puts more cash in your hands sooner, but it says nothing about what that cash costs. Fees are charged separately, and they usually depend on how long the invoice stays outstanding. Compare providers on total cost for a realistic invoice, not on advance rate alone.
It is also worth remembering that the reserve is your money. It comes back to you when the invoice is paid, less fees and any adjustments such as disputed amounts or credits.
Advance rates on a line of credit and on payroll funding
The same idea appears in other receivables financing. On a revolving A/R line of credit, the amount you can draw is typically calculated from the eligible receivables you carry, so availability follows your billings as they rise and fall.
With payroll funding, availability is a formula against earned but unbilled revenue, usually capped at 85%. As long as a draw stays within that limit, it can be used for whatever it takes to perform the work.