Reserve account

The internal ledger tracking amounts held back for each funded invoice.

Why it matters

The reserve account balance reflects money earned but not yet paid to the seller. It is the difference between the total invoice face value funded and the sum of the advance plus accumulated fees plus any chargebacks or holds. Reserve is released when the customer pays and all charges are settled. Cross-collateral provisions can allow reserve from one invoice to be held to cover obligations on another, reducing the effective reserve release the seller receives. Understanding reserve account mechanics is essential for cash flow planning in a factoring program.

How it appears in contracts

The reserve account is defined in the Reserve or Reserve Account section of the factoring agreement. The factor maintains the reserve account as a ledger, not necessarily as a segregated bank account in the seller name. The agreement should specify: the reserve percentage held per invoice, the timing of reserve release, whether cross-collateral applies, and whether the factor can set off other amounts owed against the reserve. Some agreements give the factor broad discretion to hold reserve beyond the standard release schedule when disputes or concentration concerns arise.

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.