Contra account

A customer that is also a vendor or counterparty, creating possible offset risk.

Why it matters

A contra account arises when the seller and a customer have reciprocal commercial relationships: the seller sells to the customer and also buys from the customer. When the customer owes money on an invoice but the seller also owes money to the same customer for purchases, the customer may assert a right to offset its payment obligation. Factors view contra account relationships as reducing the effective collectibility of invoices from those customers. Disclosing contra account relationships before funding allows the factor to adjust credit limits appropriately rather than discovering the offset after an invoice goes unpaid.

How it appears in contracts

Factoring agreements require sellers to disclose contra account relationships in the representations and warranties section. Common language: the seller represents that no account debtor has any right of offset, deduction, or contra account against any funded invoice except as disclosed in writing. Undisclosed contra accounts that result in customer offset against a funded invoice may constitute a breach of the warranty of validity, triggering a chargeback. Sellers should review all customer relationships for purchasing cross-obligations before submitting invoices from those customers.

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.