Glossary

Invoice factoring

Selling unpaid invoices to a factor for cash now.

Selling invoices to a factor that advances most of their value, collects from your customer, and remits the remainder minus fees. Customers are typically notified. Recourse factoring makes you replace unpaid invoices; non-recourse shifts specified customer-credit risk to the factor. Financing vs. factoring, and who it fits.

How it appears in a contract

A factoring agreement with advance rate, fee schedule per period, recourse terms, minimum volume, and term.

Worked example

An $18,000 invoice at a hypothetical 80% advance and 2% per 30 days: $14,400 now, about $3,240 later if paid in 30 days.

Illustrative figures on stated assumptions; not quotes.

What to ask

• Recourse or non-recourse, and what events are covered?
• Notification: what will my customers see?
• Minimum volumes and termination fees?

Related terms

Accounts receivable financing · Net 30 · Net 60 · all terms