Collection rights

The right to pursue payment from the customer.

Why it matters

When collection rights transfer to the factor, the business loses control over how customers are contacted and what payment terms are enforced. The factor may accelerate collection efforts, demand payments the business would have extended time on, or alter a long-standing customer relationship. In non-recourse factoring, collection risk also transfers but only for approved credit risks, not all non-payment scenarios. The scope of collection rights transferred is defined in the factoring agreement and affects both customer relationships and legal remedies in case of dispute.

How it appears in contracts

Assignment of collection rights is documented in both the factoring agreement and the UCC-1 financing statement. The agreement defines what the factor can and cannot do: whether they can sue the account debtor directly, accept payment plans, issue credits, or settle disputes. Sellers who want to maintain direct customer relationships should look for provisions requiring the factor to notify the seller before taking any collection action beyond initial remittance requests. Some programs offer a hybrid structure where the seller handles customer communication and the factor handles cash application.

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.