Updated 2026-05-19

Audit rights

The factor's right to review business records tied to receivables and funding.

Why it matters

Audit rights allow the factor to verify the accuracy of invoices, the existence of underlying transactions, and the completeness of disclosures made under the factoring agreement. Audits may be conducted on-site or through document review, and they may occur periodically or be triggered by specific concerns such as elevated dilution, verification failures, or suspected misrepresentation. The cost of an audit may be charged to the seller under some agreements. Sellers should maintain organized records of invoices, delivery documentation, and customer communications to minimize the disruption and duration of a factor audit.

How it appears in contracts

Audit rights provisions appear in the Inspection and Audit section of the factoring agreement. Common language gives the factor the right to audit the seller books, records, and business premises at any time with reasonable notice, or without notice if an event of default has occurred. The seller agrees to cooperate fully and provide access to all requested documentation within a specified period. Refusing or obstructing an audit may constitute an event of default under the agreement. Some agreements specify that the audit cost is borne by the seller if the audit reveals material discrepancies or misrepresentations.

Related terms

• Event of default
• Invoice verification
• Factoring agreement
• Eligible receivable