In factoring, the advance rate is the share of each invoice you receive when the factor buys it, and the rest sits in a reserve until your customer pays. In asset-based lending, advance rates set how much you can borrow against each type of collateral.
Rates depend on the quality of what backs them. Receivables from creditworthy customers on short payment terms earn higher advance rates than slow-paying or concentrated accounts. Inventory usually earns less than receivables, because it is harder to turn into cash.
Example: $60,000 of invoices at an 80% advance rate puts $48,000 in your account now. The other $12,000 is held as a reserve until customers pay.
A higher advance rate is not always the better deal. Compare it together with the fee and the terms for releasing the reserve.