Collection account

An account designated for customer payments on assigned receivables.

Why it matters

A collection account controlled by the factor ensures that customer payments go directly to the factor without passing through the seller operating account. This reduces the risk of misdirected payments and allows the factor to apply funds immediately to outstanding invoices, reserves, and fees. Some factors use a lockbox operated by a bank; others use a dedicated account in the factor name. The account structure affects how quickly reserve is released: funds received in a lockbox may take one to two business days to clear and be applied to the seller reserve balance.

How it appears in contracts

Factoring agreements specify the collection account in the Payment Directions or Lockbox section. The seller agrees to direct all customer payments to this account and to promptly forward any misdirected payments received in error. If the seller receives a customer payment that should have gone to the collection account, the agreement typically requires transfer to the factor within one to three business days. Holding or using misdirected payments can constitute a breach of the agreement and, in some circumstances, conversion under applicable state law.

Related terms

Related article: How invoice factoring works

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.