The percentage of an approved invoice that a factor pays to the seller upfront, before the customer has paid. Common advance rates range from 80 to 95 percent depending on the industry, customer creditworthiness, and program type. The remaining percentage is held in reserve until the customer pays and fees are deducted.
The percentage of an invoice amount that the factor holds back after paying the initial advance. The reserve is released to the seller after the customer pays and factoring fees are deducted. Reserve percentages typically range from 5 to 20 percent, reflecting the advance rate. If the customer does not pay, the reserve may be applied to the chargeback obligation.
A factoring structure in which the seller retains credit risk on the invoices sold. If a customer fails to pay an invoice within the recourse period, the seller is obligated to repurchase the invoice or provide a replacement eligible invoice. Recourse factoring typically carries lower fees than non-recourse because the factor assumes less risk.
A factoring structure in which the factor assumes certain defined credit risks if a customer cannot pay due to insolvency or a specific qualifying credit event. Unlike recourse factoring, the seller is not required to repurchase invoices covered by the non-recourse guarantee. However, the coverage is narrow: most contracts exclude losses from disputes, fraud, dilution, offsets, or customer objections from the non-recourse protection.
A written communication sent to an account debtor (the customer) informing them that an invoice has been assigned to a factor and that all future payments must be sent directly to the factor's designated lockbox or account. Under UCC Article 9, a properly delivered notice of assignment gives the factor enforceable rights to collect from the customer. The notice typically includes the factor's name, payment address, and a reference to the invoice or account being assigned.
A public financing statement filed under Article 9 of the Uniform Commercial Code to give notice of a secured party's interest in specified collateral, which typically includes accounts receivable and related rights. The filing perfects the security interest, establishing priority relative to other creditors. A factor files a UCC-1 at the start of a factoring relationship to protect its interest in the purchased receivables. The filing is public record and visible to other lenders who search the UCC index.
The party that owes an obligation. In factoring discussions, the term may refer to the seller or another obligated party depending on context.
The customer or other party obligated to pay an invoice or account.
Reductions to collectible invoice value caused by credits, disputes, returns, allowances, or offsets.
A contractual event requiring the seller to repurchase, replace, or cover a funded invoice that the factor can no longer hold as an eligible asset. Chargebacks are most commonly triggered by customer non-payment after the recourse period expires, but they can also be triggered by invoice disputes, short pays, customer insolvency (in recourse programs), returns, credits, dilution above a threshold, or discovery that an invoice was ineligible when funded.
A report showing unpaid invoices grouped by days outstanding.
A structure where customers are notified that receivables are assigned and payment directions changed.
A structure where the customer may not receive ordinary assignment notice, subject to contract and legal limits.
Factoring of selected invoices rather than an entire ongoing receivable stream.
An ongoing factoring relationship governed by a broader purchase or factoring agreement.
An advance intended to help cover fuel costs, common in some transportation factoring programs.
Payment of remaining reserve after customer collection and deductions.
A required invoice volume or fee level during a contract period.
A fee charged when a seller exits a factoring agreement before the end of the contract term or without giving proper advance notice. Termination fees are calculated in several ways: a flat amount stated in the contract, a multiple of average monthly fees, a percentage of the facility size, or the fees that would have been earned over the remaining contract term. The calculation method determines the actual cost of exiting, which can vary significantly.
An owner or individual promise to be responsible for specified business obligations.
The contract describing sale or assignment of receivables and related obligations.
The primary written contract governing the relationship between a business and a factoring company. It defines which invoices are eligible for purchase, the advance rate and reserve structure, the discount fee schedule, the recourse period, chargeback triggers, UCC rights, default events, remedies, and the process for terminating the arrangement. The factoring agreement is the controlling document for all obligations—verbal representations and marketing materials are secondary to what is written in it.
A factor process for confirming invoice validity, delivery, and customer acceptance.
The maximum approved exposure for a customer, account debtor, or seller.
A cap on the percentage of the total funded receivable pool that can come from a single account debtor or group of related debtors. Most factoring programs set concentration limits at 20 to 25 percent. Invoices that would push a single debtor's total above the concentration limit are typically ineligible or require excess reserve. The limit protects the factor against outsized credit exposure to one payor.
A receivable considered unlikely to be collected.
A customer objection to an invoice, delivery, price, quality, or other payment condition.
A reduction claimed by a customer because of another amount allegedly owed by the seller.
A controlled payment account or address used to collect receivable payments.
A payment sent by a customer or payer.
Transfer of rights in invoices or accounts to another party.
Amounts owed to a business by customers for goods or services already provided.
A request for payment describing goods or services, amount due, customer, and payment terms.
An invoice accepted by the factor as eligible for funding.
A receivable that meets all of the requirements specified in the factoring agreement for purchase or advance by the factor. Common eligibility criteria include: the invoice must be for completed, delivered goods or services; the account debtor must have approved credit; the invoice must not be disputed, contingent, or subject to offset; the invoice must not be cross-aged past a certain percentage; and the invoice must not exceed the debtor's credit limit or the program's concentration limit.
A receivable excluded from funding under contract criteria.
Review of the account debtor payment risk before approving invoices.
A call or other contact used to confirm invoice details with a customer.
A listing of invoices submitted for purchase or funding.
The primary factoring charge applied to the invoice face value as compensation for the factor's advance, credit risk, and collection services. The discount fee may be a flat percentage of the invoice, a tiered rate that increases as the invoice ages, or a daily rate that accrues until the customer pays. The same fee expressed in different ways (flat vs. daily) can look very different numerically but produce similar actual costs depending on how quickly customers pay.
A stated charge that does not vary by daily accrual, subject to contract terms.
A fee that changes as an invoice remains unpaid for longer periods.
A fee rate applied per day, usually based on invoice or advance amount.
Maximum amount a factor will fund for a seller or customer set.
Ledger or account tracking held-back amounts and deductions.
A seller obligation to buy back an invoice after a contract trigger.
Another eligible invoice used to substitute for a charged-back item.
A default under one agreement that can trigger default under another.
Collateral securing more than one obligation.
Termination or release of a filed security interest after obligations are satisfied.
An agreement changing priority among creditors or secured parties.
A contract among creditors defining lien priority and remedies.
Rights to collect payment from account debtors.
Dependence on a small number of customers for receivable value.
The time after which an unpaid invoice may become subject to recourse.
The date an invoice or obligation is due.
Payment below the invoiced amount.
A return of reserve or other amount after deductions, depending on contract terms.
Written notice to a customer about assignment and payment instructions.
A company that purchases or finances business receivables under a factoring arrangement.
A transaction in which a factor purchases an account or invoice.
Confirmation of invoice, shipment, service completion, or payment obligation details.
An online system used to submit invoices, view reserves, or track payments.
Communication sent to an account debtor about payment instructions or assignment status.
Control over a deposit account or lockbox used to receive customer payments.
A collateral formula used in credit facilities to determine available borrowing.
Funding above the normal eligible amount or formula.
The amount currently available to be advanced after limits, reserves, and ineligible receivables.
A problem found during invoice verification that may delay or prevent funding.
A customer status that prevents invoices from being approved for funding.
A rule that can make otherwise current invoices ineligible when older invoices from the same customer exceed a threshold.
A reserve for expected credits, returns, allowances, or other reductions to invoice value.
A higher fee or interest rate that may apply after a contract default.
A charge for ending a factoring agreement before the stated term expires.
Contract language that extends the term unless notice is given before a deadline.
The required advance notice before terminating or changing a contract.
Written release or termination of assignment after obligations are satisfied.
An account designated for customer payments on assigned receivables.
Customer payment directions for a lockbox or controlled payment account.
A document reducing the amount owed on an invoice.
A customer that is also a vendor or counterparty, creating possible offset risk.
Contract language tying payment timing to receipt of funds from another party.
A portion of contract payment held until work is complete or accepted.
A job-site record used to document services, labor, equipment, or materials provided.
A freight document confirming agreed shipment rate and load details.
A transportation document that identifies goods, shipment terms, and receipt of cargo.
Evidence that goods or services were delivered or completed.
Client approval of worker hours, often required before staffing invoices are collectible.
A payer refusal or reduction of a claim, common in healthcare receivables.
A payer or customer recovery of amounts previously paid or credited.
A legal characterization of a receivables transfer in which the assignment is treated as a completed sale rather than a secured loan.
An invoice made ineligible for funding because the same account debtor has another invoice outstanding past a defined age threshold.
The percentage of gross invoice value not collected due to credits, disputes, returns, short pays, or offsets over a measured period.
The maximum credit or purchase capacity available to a seller under a factoring program at any given time.
A contract-defined event that gives the factor default remedies under the factoring agreement.
A limited period in which a party may fix a default before some remedies become available.
A seller promise that submitted invoices are valid, enforceable, undisputed, and owed by the account debtor.
A contract provision stating that the account debtor should not reduce payment by unrelated credits, claims, or offsets.
A change in payment instructions directing the account debtor to pay the factor, lockbox, or collection account.
A record of invoices, credits, payments, and open balances for a specific account debtor.
Contract rights allowing a factor to inspect records, invoices, accounts, customer files, or related documents.
The state or jurisdiction law chosen to interpret and enforce the factoring agreement.
A contract clause choosing where disputes must be filed or heard.
A contract clause in which parties waive the right to have certain disputes decided by a jury.
Legal fees that may be shifted to a party under the factoring agreement after enforcement, default, or collection activity.
A credit given to a customer for missed service levels, quality issues, or contract adjustments.
Billing tied to completion or acceptance of defined project milestones rather than a simple delivery date.
A project document describing services, deliverables, timing, acceptance criteria, and payment terms.
A security-services instruction document describing duties, location, schedule, and procedures for a guard post.
A credit or price reduction triggered when service performance falls below a contract standard.
An online system used by a customer to receive invoices, approve them, and issue payments.
A dispute involving a subcontractor's work, payment, documentation, or performance on a customer invoice.