Factoring agreement

The contract that governs everything about the factoring relationship—fees, reserves, chargebacks, UCC rights, and how to exit. Whatever the salesperson said, this document controls.

Why it matters

The factoring agreement is the controlling document for all obligations. Fee quotes, verbal explanations, and sales materials describe the program but do not bind the factor. The agreement specifies every eligible receivable criteria, every chargeback trigger, every fee, and every exit provision. Business owners should read the complete agreement—not just the rate sheet—before signing.

How it appears in contracts

A complete factoring agreement is typically 10 to 30 pages and covers at minimum: Definitions, Purchase and Sale of Receivables, Advance Rate and Reserve, Fees and Charges, Representations and Warranties, Covenants, Chargeback and Recourse, Default and Remedies, UCC and Security Interest, Term and Termination, and Personal Guarantee (as an exhibit). In reviewing the agreement, read the Definitions section first—terms like 'Eligible Receivable,' 'Debtor,' 'Chargeback Event,' and 'Default' are defined there and control how every other section is interpreted. Do not assume industry-standard meanings; factoring agreements vary significantly in how they define these terms.

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.