Factoring Reserves: What They Are and How They Work

Q: Are factoring reserves my money?

Yes. Reserves are made up of customer payments that have already been received and belong to you, after any deductions and reconciliation.

Factoring reserves are often among the most complex aspects of the invoice factoring process to understand.

Many factoring websites provide simple descriptions of reserves, leaving you confused about where the money goes, when deductions occur, and what you actually receive.

We'd want to clarify this concept so you understand what a factoring reserve is, how it works, how reserve amounts are computed as payments arrive, and when balances are paid out.

What is a Factoring Reserve?

A factoring reserve is a temporary deposit account set up by a factoring company for each client to deposit customer payments. This account contains the balance of batches of invoices after the advance and fees have been deducted.

Reserve accounts typically retain payments for both factored and non-factored invoices. The balance is usually released once per week on a specific day.

Why do Factoring Companies Maintain Reserves?

Reserves help the factoring company handle payments efficiently while limiting financial risk.

Reserve accounts make it possible to:

Net advances as soon as payments arrive
Take fees right away.
Cover short payments or chargebacks on overdue invoices.
Reconcile activity before releasing the remaining balance.

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Why do Factors Receive Payments on Non-Factored Invoices?

Most factoring agreements require clients to make payments to the factoring company for all invoices, regardless of whether they have been factored.

Payments on non-factored invoices, together with factored invoice payments, are deposited into the reserve account, included in the reserve balance, released according to the timetable, and used to cover any short pays, disputes, or chargebacks on factored invoices as needed.

This arrangement protects the factoring company because it makes funds from all sources available to cover offsets and adjustments.

How Factoring Reserves Work—Detailed Example

Here’s a real-world example that shows how reserves work, including payments, immediate deductions, and a reserve release on Tuesday.

Acme Logistics is a factoring company client who has agreed on the following:

Advance rate: 90%
Factoring fee: 2% per factored invoice

The factoring company releases reserves every Tuesday, and all payments should be remitted to the factor’s lockbox.

Acme Logistics issues three invoices for services provided and factors two of the invoices:

Factored Invoice #101: $8,000. Receives an advance of $7,200
Factored Invoice #102: $12,000. Receives an advance of $10,800

The total advance paid upfront is $18,000

For this example, the reserve account starts with a balance of zero.

Acme Logistics bills clients on NET 30 terms. The following customer payments are received in the same week.

A payment for Factored Invoice #102 for $12,000 is received on Day 25

As soon as this payment is received, the factor:

Reimburses the advance: $10,800
Deducts the factoring fee (2% of $12,000): $240

The remainder is added to the reserve account: $12,000 − $10,800 − $240 = $960

Then the payment for one Non-Factored Invoice #201 for $5,000 is received on Day 27

The factor deposits the entire amount into the reserve account.

The reserve balance is now $960 + $5,000 = $5,960

On Day 28, a payment of $3,000 for Factored Invoice #101 is received. In this case, there’s a short pay of $5,000 because the invoice amount is $8000.

The factor then:

Deducts the factoring fee (2% of $8,000): $160
Applies the remaining amount toward the advance and covers the shortfall with the reserve balance

Here’s the calculation

Advance paid: $7,200
Amount Collected: $3,000
Uncovered advance shortfall covered with reserves: $4,200

After this transaction, the reserve balance is $5,960 − $4,200 = $1,760

On Tuesday of that week, after all payments and deductions for the period are processed, the factoring company sends a single wire to Acme Logistics for $1,760, releasing the reserve balance.

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Factoring Reserves: FAQs

When I factor invoices, are factoring reserves my money?

Yes. Reserves are made up of customer payments after any deductions and reconciliation that have already been received and belong to you.

When do reserve releases happen?

Most factoring companies issue reserve releases once a week, on a set day (for example, every Tuesday)

Are fees deducted at the time of the reserve release?

No. Fees are usually deducted from payments as soon as they are received, not when the reserve is released.

Do factors collect non-factored invoice payments too?

Often, yes. In many agreements, all customer payments should be sent to the factoring company and deposited into your reserve account activity.

What happens if an invoice is short-paid?

The shortfall reduces the reserve balance immediately and may lower or even eliminate the reserve release amount.

Author: Analia Miguel

Analia Miguel is an MBA and former CPA with 20+ years in business finance and marketing, including 14 years in alternative business finance. She helps business owners understand their funding options and choose cash flow solutions that truly fit their needs.

Last Updated: January 7th, 2026