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Master the industry lingo with a quick glossary of the most common factoring terms

Invoice Factoring Terms You Should Know

Accounts receivable factoring has its own language. Learn the terms you need to successfully navigate your factoring relationship! For more comprehensive information about the factoring process, check out our invoice factoring 101 guide.

Below are just some of the most common factoring terms. Knowing these will help you find the best factoring company to meet your company’s financing needs.


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Account Creditor/Client

That’s you! In a factoring relationship, the account creditor is the company providing goods or services to a debtor or customer – and, of course, you are the factoring company’s client.

Account Debtor/Customer

The company or companies purchasing goods and/or services from the account creditor.

Discount Fee

Another term for factoring fee. The discount is a small charge assigned by the factor when they purchase your accounts receivable. Discount fees are determined by the size of the invoice, the debtors’ creditworthiness, and the length of time the invoice remains unpaid.

Factoring Advance Rate

The percentage of your invoices that the factoring company will deposit in the client’s account up-front. The remainder is held in a reserve account (see below).

Factoring Agreement

The contract between the factoring company and the client, covering such elements of the relationship as fees, advance rates, and the length of the relationship. Agreements may be amended, extended, or terminated according to provisions included in the agreement.

Factoring Broker

A third-party company or individual who connects business owners to the most appropriate factoring company for their funding needs. Factor Finders is a factoring broker.

Factoring Company

A firm that specializes in providing working capital to other companies by advancing cash against unpaid accounts receivable.

Factoring Fee

See discount fee, above. Or, check out this article about factoring costs.

Invoice Factoring

The process by which a factoring company purchases a company’s accounts receivable. Also known as accounts receivable factoring.

Non-Recourse Factoring

A factoring option in which the factoring company assumes all risk of nonpayment. With non-recourse, clients receive a lower advance but will not be responsible for the invoice once the factor purchases it.


The invoice remainder, minus fees, that is deposited in your account when your invoices are paid. This is different from the reserve amount, which includes the factoring fees.

Recourse Factoring

A standard factoring arrangement in which the client is responsible for invoices that remain unpaid past their recourse period.

Recourse Period

The amount of time a factoring company will hold an unpaid invoice before requiring the client to close it. Recourse periods vary from 60 to 120 days depending on the factoring agreement.


The balance of an invoice that is withheld pending payment from the customer. The advance plus the reserve will equal the full amount of the invoice. This is not to be confused with the rebate, which is the final amount the client receives after payment is received and fees are deducted.

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