Updated 2026-05-19 · By Dana Whitfield

Questions to ask a factoring company

Before signing, ask about recourse, fees, reserve timing, customer notice, filings, minimums, termination, and dispute handling.

Evaluating a factoring program requires asking specific questions and getting answers that can be verified against the written agreement. Sales presentations typically focus on the advance rate, a range of fee percentages, and the speed of funding. The questions that matter most for understanding total cost and risk cover what happens in less-than-ideal scenarios: slow-paying customers, disputed invoices, minimum volume misses, and program exit.

Start with the fee structure. Ask what the fee rate is, what period it covers, and what invoice amount it applies to. Then ask what changes the fee: does a customer who pays on day 32 instead of day 30 trigger the next fee tier? Does the rate apply to the invoice face value or the advance amount? Request a written example using your actual invoice size and your most common customer payment cycle.

Ask about reserve: what percentage is held, when is it released after customer payment, and can the factor hold one invoice's reserve against a problem on a different invoice. Cross-collateral reserve language, where present, should be explained in the factor's own words before the agreement is signed.

Recourse and chargeback questions matter as much as the fee. Ask for a written list of every event that can trigger a chargeback or repurchase obligation. Does a customer dispute trigger a chargeback even before the recourse period expires? What happens if a customer short-pays? Is there a cure period before a chargeback is issued, or is it immediate?

Customer notice questions are important for managing business relationships. Ask who sends the notice of assignment, what it says, and when it goes out. If the business prefers a specific format or wants to send its own cover letter alongside the factor's notice, confirm whether that is permitted. Ask what the process is if a customer pushes back on the notice or claims an anti-assignment clause in the underlying contract.

Minimum volume questions become critical in programs with ongoing commitments. Ask whether there is a minimum monthly fee or invoice volume, what the shortfall penalty is if the minimum is not reached, and whether the minimum applies every month or is measured on a trailing average. A minimum fee that sounds small at full volume can become the dominant cost during a slow period.

Exit questions are often skipped until a business wants to leave. Ask what the termination notice period is, how the termination fee is calculated, whether the agreement renews automatically and on what timeline, and what the process for UCC lien release is. Calendar the notice deadline immediately after signing.

Ask how the factor handles new customers. What is the process for getting a new account debtor approved? How long does credit review take? What information does the factor need about a new customer before its invoices can be funded? If a large portion of the business's growth will come from new customer relationships, the answer to this question affects how useful the factoring program will actually be.

Finally, ask for a written summary of all fees, a sample settlement statement showing how a typical invoice would be funded and settled, and a copy of the full purchase agreement before the relationship starts. A provider that is reluctant to provide these documents before signing is a more significant concern than any specific contract term.