Reserve

The portion of the invoice held back—not paid upfront—until the customer pays and fees are deducted. It is the difference between 100 percent and the advance rate.

Why it matters

Reserve is the money earned from each invoice that is not available yet. Delays in reserve release due to disputes, chargebacks, or cross-collateralization provisions directly reduce working capital. Understanding when the reserve is released—and what can hold it back—is as important as understanding the advance rate.

How it appears in contracts

The reserve mechanism is defined in the 'Reserve' or 'Holdback' clause and cross-referenced in the 'Collections' and 'Chargeback' sections. Key items to identify: (1) the holdback percentage applied to each funded invoice; (2) what triggers additional reserve increases—common triggers include debtor concentration exceeding a threshold, dispute notices, or high dilution rates; (3) when the reserve is released—most agreements say 'upon full collection of the invoice,' but some hold reserves until end-of-month settlement cycles; (4) whether the factor may apply your reserve to debts owed on other invoices under a cross-collateralization clause.

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.