Debtor
The party that owes money; in factoring this can mean the business or the customer depending on context.
Why it matters
Clarity on who is the debtor matters for UCC filings, recourse obligations, and enforcement. In standard factoring, the seller is the debtor under the UCC-1 security interest filed by the factor; the customer is the account debtor obligated to pay the invoice. Confusion between these two uses of the term can create misunderstandings about who owes what to whom. Non-recourse factoring shifts credit risk for approved account debtors but does not remove the seller obligations under the factoring agreement itself.
How it appears in contracts
The term debtor in UCC Article 9 specifically refers to the party who grants a security interest in collateral. In factoring, the seller grants the factor a security interest in receivables, making the seller the debtor for UCC purposes. The account debtor—the seller customer—is a separate concept defined under UCC Section 9-102 as the party obligated on an account. Factoring agreements sometimes use the term debtor loosely to mean the account debtor; reading the definition section helps clarify which meaning applies in a particular clause.
Related terms
Related reading
Sources
- International Factoring Association - International Factoring Association. Accessed 2026-05-19.
- Secured Finance Network - Secured Finance Network. Accessed 2026-05-19.