Updated 2026-05-19

Purchase agreement

The contract under which invoices are sold or assigned to the factor.

Why it matters

The purchase agreement defines what invoices are sold, exclusions from the sale, representations the seller makes about each invoice, and the conditions under which the factor can reject or chargeback invoices. It is the primary document governing the factoring relationship and controls the advance rate, fee schedule, reserve terms, UCC collateral scope, and remedies on default. Reading the purchase agreement carefully before signing—particularly the exclusions, representations, and default provisions—is more important than comparing headline rates, since the terms determine actual available funding and risk exposure.

How it appears in contracts

The purchase agreement, sometimes called the factoring agreement or receivable purchase agreement, is the master document that governs all transactions in the program. Each invoice submitted for funding is treated as a separate sale under the terms of the purchase agreement, and the representations in the agreement apply to each submission. Amendments to the purchase agreement must typically be in writing and signed by both parties; oral modifications are usually not enforceable. Sellers should retain the original signed agreement and all amendments throughout the program term and for several years after termination.

Related terms

• Advance rate
• Reserve
• Recourse
• Chargeback