Invoice Factoring Glossary
Every term you'll encounter when evaluating, negotiating, or using invoice factoring, defined clearly, with real examples.
Accounts Receivable Financing
Any financing arrangement where outstanding customer invoices serve as collateral, including factoring, invoice discounting, and asset-based lending.
Accounts Receivable in Invoice Factoring
The outstanding invoices your customers owe. The core asset you sell or borrow against when you use invoice factoring.
Asset-Based Lending (ABL)
A revolving credit line secured by business assets, including receivables, inventory, and equipment, a structured alternative to invoice factoring.
Cross-Aging in Invoice Factoring
A rule that makes all invoices from a customer ineligible for factoring once any single invoice from that customer hits 90+ days past due.
Customer Concentration in Invoice Factoring
How dependent your receivable portfolio is on a single customer, high concentration, typically reduces your advance rate and increases fees.
Customer Concentration Risk
The financial vulnerability created when too much revenue comes from one or two customers, directly affecting factoring eligibility, advance rates, and terms.
Days Sales Outstanding (DSO) in Factoring
The average number of days your customers take to pay, a key metric factoring companies use to assess how fast your receivables turn into cash.
Debtor Credit Limit in Factoring
The maximum dollar amount a factoring company will advance against invoices from any single customer at any one time.
Debtor in Invoice Factoring
Your customer, the business that owes you money on an invoice. Their creditworthiness, not yours, determines whether an invoice qualifies for factoring.
Dilution in Invoice Factoring
The percentage of invoices reduced or uncollected due to credits, disputes, returns, or adjustments, a critical risk measure for factoring companies.
DIP Financing
Working capital for businesses in Chapter 11 bankruptcy, authorized by the court under Section 364(c). Invoice factoring is one of the fastest and most accessible DIP financing options.
Factoring Advance Rate
The percentage of an invoice’s face value paid upfront, typically 70–97% depending on your industry and your customers’ creditworthiness.
Factoring Agreement / Contract
The legal contract governing your factoring relationship, covering advance rates, fees, term length, recourse provisions, and termination conditions.
Factoring Broker
An independent intermediary who shops your business to multiple factoring companies to find the best rates and terms, typically at no cost to you.
Factoring Company (Factor)
The financial institution that buys your invoices, advances cash against them, and collects payment directly from your customers.
Factoring Due Diligence Fee
A one-time charge to cover the cost of verifying your business, customers, and receivables before a factoring facility is approved.
Factoring Facility Size
The maximum total dollar amount of invoices a factoring company will have outstanding against your account at any one time.
Factoring Fee
The primary cost of factoring, typically expressed as a percentage of the invoice face value, charged per week, per month, or as a flat fee.
Factoring Monthly Minimum Fee
A contractual fee floor ensuring the factoring company earns a minimum amount each month, regardless of how many invoices you submit.
Factoring Origination Fee
A one-time setup charge assessed by a factoring company when a new factoring facility is established, separate from ongoing factoring fees.
Factoring Rate
The fee structure used to price factoring, flat, tiered, or prime-plus, applied to the invoice value over the length of the funding period.
Factoring Reserve / Holdback
The portion of an invoice’s value withheld until your customer pays, typically 5–30% of the invoice, released after full collection.
Factoring Termination Fee
A penalty for ending a factoring contract before the agreed term expires, one of the most important contract clauses to negotiate before signing.
Factoring Volume Minimum
A contractual requirement to submit a minimum dollar amount of invoices each month; failure triggers the monthly minimum fee.
Factoring Wire Fee / ACH Fee
A per-transaction charge assessed each time the factoring company transfers funds to your bank account, applies to every advance and reserve release.
Flat vs. Tiered Factoring Fee
The two main factoring fee structures: flat charges a fixed rate regardless of payment timing; tiered, which charges increase the longer an invoice remains unpaid.
Freight Factoring
Invoice factoring designed for trucking companies and freight brokers, typically offers same-day or next-day funding against freight bills and load confirmations.
Full Ledger Factoring
A factoring arrangement where you submit all of your invoices, giving the factor broad portfolio visibility and often securing the lowest rates available.
Ineligible Receivables in Factoring
Invoices a factoring company won’t purchase, typically due to disputes, contra-account relationships, government debtors, or invoices older than 90 days.
Invoice Aging Report
A financial document categorizing outstanding receivables by how long they’ve been unpaid, used by factoring companies to assess the health of your receivable portfolio.
Invoice Discounting
A financing arrangement where a business borrows against unpaid invoices while retaining control of collections, typically confidential and available to established businesses.
Invoice Dispute in Factoring
When a customer challenges an invoice’s validity or amount, disputes can freeze funding against that customer’s invoices until the issue is resolved.
Invoice Factoring
The core concept: selling unpaid B2B invoices to a factoring company in exchange for immediate cash — typically 70–97% of the invoice face value.
Invoice Payment Terms (Net 30 / 60 / 90)
The agreed timeframe in which a customer is expected to pay an invoice after it’s issued; longer terms mean slower cash flow and typically higher factoring fees.
Invoice Verification in Factoring
The process a factoring company uses to confirm submitted invoices represent legitimate, completed work before releasing funds.
Non-Notification Factoring
Confidential factoring where your customers are never told their invoices have been sold, you manage collections yourself under your own name.
Non-Recourse Factoring
Factoring where the factor absorbs the loss if your customer goes bankrupt, backed by trade credit insurance from providers like Coface or Euler Hermes.
Notice of Assignment in Factoring (NOA)
A formal written notification sent to your customers directing them to pay the factoring company directly instead of you.
Notification Factoring
The standard factoring structure where your customers are formally notified their invoices have been assigned and payment must go to the factor.
PAYDEX Score
Dun & Bradstreet’s 0–100 business payment score, factoring companies, use this to evaluate your customers’ creditworthiness before purchasing invoices.
Payroll Funding
Invoice factoring used by staffing agencies to bridge the gap between weekly payroll obligations and Net 30–60 client payment terms.
Purchase Order Financing
Capital advanced against a confirmed purchase order to fund production or procurement, used before an invoice exists, often paired with factoring.
Recourse Factoring
Factoring where you buy back invoices if your customer doesn’t pay, typically lower cost than non-recourse, but you retain the credit risk.
Reverse Factoring
A buyer-initiated financing arrangement where the buyer’s bank pays suppliers early, while the buyer extends its own payment terms.
Same-Day Factoring Fee
An additional charge for receiving your advance on the same day an invoice is submitted, rather than the standard next-business-day timeline.
Selective Factoring
A flexible arrangement where you choose which invoices to factor, one at a time, no long-term contract or minimum volume commitment required.
Spot Factoring
Single-invoice factoring with no ongoing contract and maximum flexibility, typically at a higher fee than contract-based factoring arrangements.
Supply Chain Finance
A suite of financing solutions optimizes cash flow across buyer-supplier relationships—reverse factoring is the most common form.
Trade Credit Insurance
The insurance product that makes non-recourse factoring possible is one where providers like Coface and Euler Hermes absorb the loss when a debtor goes bankrupt.
Last Updated: July 9th, 2026