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Learn more about these pricing models, how they compare, and how to make the right choice for your business.
If you’re currently in the market for an accounts receivable (AR) finance solution like factoring, credit insurance, or B2B BNPL, you might have received an offer from financial institutions featuring risk-based or fixed pricing (or a combination of the two).
If so, you might be asking yourself:
What are these models, and how do they compare?
Which one is better for my business?
How can I be sure this provider is the best choice?
We know how confusing these pricing models can be. To help you get to grips with the nuances and make an informed decision, this article will cover:
Risk-based pricing vs fixed pricing: Pros and cons
How to address the complexities of risk-based pricing
How risk-based and fixed fees compare
Other AR finance fees to consider
How Tilta structures its pricing and why
If you’re exploring pricing options for AR finance, get in touch to request an offer that includes both risk-based and fixed pricing so you can compare for yourself.
Risk-based pricing
To make the right choice, it's important to understand how different pricing models are structured and their respective advantages and disadvantages.
Let's start with risk-based pricing.
What is risk-based pricing in AR finance?
Risk-based pricing in accounts receivable (AR) finance is a dynamic pricing model that uses a borrower’s credit score and other methods to assess a borrower’s default risk.
The provider uses factors such as credit history, payment patterns, and industry risk to determine a customer’s likelihood of repayment. Each buyer is then assigned a credit score, allowing lenders to tailor the pricing to their risk level.
Receivables tied to higher-risk customers typically incur higher interest rates while credit-worthy debtors unlock better rates. This makes risk-based pricing especially appealing to businesses serving low-risk customers.
The role of credit scoring in risk-based pricing
Credit scoring is central to risk-based pricing models. Modern financial services rely on sophisticated credit scoring methodologies powered by real-time data to assess credit risk at the buyer level.
These credit scores will influence both interest rates and credit decisions, helping the lender balance profit with exposure. Businesses working with more credit-worthy buyers benefit from preferential pricing, while higher-risk transactions are still eligible, but at a higher cost.
Risk-based pricing: Pros and cons
Pros | Cons |
|---|---|
It ensures higher acceptance rates A wide range of customers will be accepted because pricing can flex to match the lender’s risk appetite. | It can be more complicated from a risk management perspective Each customer will need a credit assessment that takes into account multiple risk factors like credit history, payment behavior, and financial health, which can slow things down. |
Its pricing is fairer Each receivable is priced according to its risk, which means lower-risk borrowers will get lower rates, which you can pass on to them. | It can be harder to predict costs Since different customers are priced differently, it can be harder to calculate your costs (but not impossible - as we’ll explain below). |
It establishes a positive incentive Customers who pay on time can be rewarded with lower prices and more favorable terms. | |
It's more flexible If you have a wide range of customers, the pricing will adapt to accommodate them. |
Why risk-based pricing works well in AR finance
If you have a broad range of customer types or customers who are subject to seasonal fluctuations, risk-based pricing will be a good fit for you. It’s also ideal for businesses looking to optimize and scale.
How to address the complexity of risk-based pricing
Risk-based pricing is more complicated. But you can still calculate the overall cost by understanding your customers’ risk profiles.
For example, as part of the sale process, you can challenge your potential factoring or BNPL provider to take a sample of your customer base and calculate their credit risk profile and the probability of default using indicators like credit history. The result should be a breakdown of pricing by borrower risk category and even a weighted average based on turnover. This will give you all the clarity of fixed pricing while ensuring consistent acceptance rates.
Note: In addition to getting a clear price, it's also a good way to put a solution to the test. If you share a sample 30 customers, the provider should come back to you within a day or two. If it takes two weeks, that’s already a red flag.
Fixed pricing
Fixed pricing applies a uniform rate to all receivables, regardless of individual buyer risk. This is a lot more straightforward, but comes with some downsides, as you see below.
Fixed pricing: Pros and cons
Pros | Cons |
|---|---|
It’s simple and predictable Because the fee is always the same, it's easy to understand and forecast cash flow and costs. This can make financial planning and pricing decisions more straightforward. | It can lead to lower acceptance rates If a customer’s credit risk exceeds the lender’s risk appetite for fixed pricing, they will be rejected. This can be a problem, especially if your portfolio is quite diverse or is subject to seasonal fluctuations |
It can be more efficient (in the short term) Since one price is applied to all customers and you don’t have to check or calculate different prices for each customer, the process can be faster. Note: This might speed things up initially, but can cause issues later if your customer portfolio changes or is subject to seasonal fluctuations. | You might end up paying more You’ll always be paying a rate that is calculated to accommodate the highest likely risk factors across your portfolio. And you’ll pay this rate, even if some of your customers are lower risk. |
It's more flexible If you have a wide range of customers, the pricing will adapt to accommodate them. | High-risk customers will be more expensive If you have a large portfolio of high-risk customers, you will pay more to finance them. |
It allows for faster onboarding You can quickly inform your merchants what pricing to expect without needing to explain different prices to different customers. | It doesn’t reflect changes to your portfolio Even if your customer portfolio improves, your pricing will stay the same. At the same time, if your customer portfolio becomes more high-risk, this will impact your acceptance rates. |
When flat pricing might be a good fit for your business
Flat pricing might work for you if your customer portfolio is consistent and the average risk profile is low. It’s also ideal for businesses that prioritize simplicity over optimization.
Comparison of pricing models in AR finance
Risk-based pricing | Fixed pricing | |
|---|---|---|
Definition | The rate varies per debtor based on individual risk factors such as credit score, payment history, and sector | One fixed rate is applied to all receivables based on the overall portfolio average |
Cost predictability | ❌ Low: Varies invoice by invoice | ✅ High: Stable and predictable |
Complexity | ❌ High: Requires ongoing credit checks, credit report analysis, and risk assessments per debtor | ✅ Low: Simple setup and ongoing management |
Cash flow forecasting | ❌ Harder: Variable costs make planning complex | ✅ Easier due to consistent rates |
Acceptance rate | ✅ Higher: Risk-based models finance a broader range of receivables, including those from higher-risk buyers | ❌ Lower: High-risk debtors may be excluded |
Cost efficiency | ✅ Higher: Pricing aligns with actual risk: lower for credit-worthy customers, higher for those with better risk profiles | ❌ Lower: Low-risk receivables may be overcharged |
Incentive to improve debtor quality | ✅ Strong: Lower debtor risk translates to lower costs | ⚪ Neutral: No direct pricing benefit |
Flexibility | ✅ More: Wider range of receivables can be financed | ❌ Less: Rigid acceptance criteria |
Portfolio suitability | Best for merchants whose receivables span a range of credit risks and risk appetites | Best for merchants with uniform, mid-risk debtor portfolios |
How do risk-based and fixed fees compare?
Let’s say you offer 30-day payment terms with instant payout. Under fixed pricing, you might be looking at something like 2.23%.
With risk-based pricing, the range might be anywhere from 1.4% to 3.8%, depending on your customers' risk profile. So if you have a low-risk portfolio, risk-based pricing could give you lower rates and save you money.
Note: Even flat pricing will vary according to factors like payment terms, payout speed, and volume.
Other AR finance fees to consider
Traditional financial institutions, like factoring and credit insurers, usually have a pricing document between four and 16 pages long. Within those pages are a lot of complicated fee models with multiple charges, for example;
Audit fee: The provider will conduct an audit of your receivables at regular intervals and charge you for the privilege.
Underwriting fee: Every time a customer requests payment terms, the provider will charge you a fee for underwriting that customer. This is usually tiered by the size of the limit.
Why Tilta offers both fixed pricing and risk-based pricing
We understand that different customers have different priorities, so we’re happy to charge using either fixed or risk-based pricing.
In our experience, clients often start with fixed-rate pricing and then, once their customers have been underwritten and the overall risk profiles have become clear, they switch to risk-based pricing.
Either way is fine for us, and we’re happy to let you switch pricing model whenever you like. Generally speaking, 80% of customers end up on risk-based pricing because it works out better in the long run.
Other benefits of working with Tilta
We work with B2B businesses across Europe, typically in wholesale and manufacturing industries, like Automa.net, Vanilla Steel, and Kindsgut. Some of the benefits you can expect when working with us include:
You don't have to worry about hidden fees
With Tilta, you’ll be charged a rate on the receivable, and that’s all. No need to model in lots of small components and other fixed costs that aren’t relevant to the receivable. And no need to wade through pages of pricing documentation.
Our pricing can be understood at a glance via a simple matrix that shows the cost based on either fixed or risk-based pricing.
You get to work with a partner, not just a vendor
At Tilta, we understand that we’re not just facilitating transactions; we’re taking on an important part of your business function. As such, we ensure our solution, integration, and pricing work hard for you.
Overall, our solution will able to save you between 0.4 and 1.0 full-time equivalent, which you can dedicate to more strategic activities.
We’ll also let you choose the payment terms and credit limits you provide to your customers and configure your fees as you see fit.
Plus, since our solution is white-label, you can brand it to fit seamlessly into your customer experience. Your customers remain yours; we’ll never intercept the relationship.
Make pricing work for your business
Choosing between fixed and risk-based pricing isn’t just about simplicity, it’s about what will serve your business best in the long run. While fixed pricing offers predictability, risk-based pricing provides a tailored, performance-aligned solution that usually results in better outcomes for your bottom line.
If you're comparing risk-based pricing and fixed pricing for AR finance, get in touch to receive a custom quote and see for yourself which model best suits your business needs.
