Account debtor

The customer who owes money on an invoice.

Why it matters

The creditworthiness of the account debtor affects which invoices get approved for funding, at what advance rate, and whether non-recourse coverage applies. Factors perform credit reviews on each debtor before establishing credit limits. A debtor with a history of disputes, slow payment, or financial distress may receive a lower credit limit or be declined entirely. The seller does not control the account debtor credit decision—it is made by the factor based on the debtor payment history and public financial information.

How it appears in contracts

The term account debtor appears in the Eligible Receivables section and throughout the UCC-9 financing provisions. Under UCC Article 9, the account debtor is the party obligated on the assigned receivable. Factoring agreements define which account debtors are approved and set credit limits for each. Invoices exceeding the credit limit for an individual account debtor are typically ineligible for funding, even if the seller has a long relationship with that customer. Changes in debtor status affect program availability without advance notice.

Related terms

Related article: What is invoice factoring?

Related reading

Sources

  • International Factoring Association - International Factoring Association. Accessed 2026-05-19. Industry association source for factoring terminology and industry context.
  • Secured Finance Network - Secured Finance Network. Accessed 2026-05-19. Industry education source for secured finance and asset-based lending context.
Financial disclaimer. This page is educational only and is not financial, legal, tax, accounting, or credit advice. Factoring terms vary by provider and contract. Read the full disclaimer.