Updated 2026-05-19

Contract factoring

An ongoing arrangement to sell invoices to a factor under a standing agreement.

Why it matters

Contract factoring creates ongoing obligations including minimum volume commitments, which mean the seller owes fees even during slow periods when fewer invoices are submitted. In exchange for the commitment, contract factoring typically provides lower rates, higher advance rates, and more consistent account debtor credit availability than spot programs. The contract term and auto-renewal provisions determine how long these obligations last. Sellers should verify the minimum volume threshold before signing—obligations that cannot be met during seasonal downturns create recurring fee exposure.

How it appears in contracts

In a contract factoring agreement, the minimum volume section specifies the required monthly or weekly submission level, either as an invoice dollar amount or as a minimum fee payable even if volume falls short. The agreement also defines what happens when the seller submits invoices in excess of the credit facility limit: typically the excess is held pending approval or rejected. Contract factoring agreements also include the UCC collateral scope, reserve account terms, and the dispute resolution process for invoices that are funded and later become disputed.

Related terms

• Notice of assignment
• UCC-1
• Lockbox
• Assignment of receivables