Invoice Factoring Glossary of Terms

A/R (Accounts Receivable)
Money owed to your business by customers for goods or services you’ve already delivered.

A/R Aging Report
A report listing all unpaid invoices, showing how long they’ve been outstanding and who owes what.

A/P (Accounts Payable)
Money your business owes to vendors or suppliers.

Account Debtor
The business or customer responsible for paying an invoice. In most conversations, it’s best to simply call them your customer.

Accrued Reserve
The portion of invoice funds that isn’t advanced upfront. It’s the difference between the total invoice amount and the advance you receive, recorded as a journal entry.

Advance
The upfront cash your factoring company sends you when purchasing your invoices, usually by wire or ACH.

Advance Rate
The percentage of the invoice the factor advances upfront, typically between 70% and 90%, depending on your industry, customer credit, and risk level. The rest is accounted for in your accrued reserve account.

Assignment
The formal transfer of your invoices from you to the factoring company.

Assignment Schedule
The list of invoices you submit to the factoring company for purchase consideration.

Cash Posting
The process of recording payments that come into the factor’s account and matching them to the correct client and customer.

Cash Reserve
The real cash held in your reserve account, funds that become available once Collections are received.

Chargeback
If an invoice hasn’t been paid within the agreed recourse period (usually 90 days), the factor may charge it back, meaning the Advanced amount and Discount Fees are deducted from your reserve. In short, the factor asks you to repay that invoice.

Client
You, the business that sells its receivables to the factoring company.

Collections
Payments received by the factoring company on behalf of its clients.

Contra Accounts
When your customer also does business with you, for example, they buy from you and you buy from them. In that case, what each party owes can offset one another.

Credit Limit
The maximum amount of funding or credit the factor is willing to extend to a particular client or customer.

Credit Memo
An accounting adjustment that reduces how much your customer owes, for example, due to a return or overbilling.

Cross-Age
A calculation used to decide if the factor should continue purchasing invoices, based on how consistently your customers are paying.

Customer
Another word for Account Debtor — the company that owes payment.

Discount Rate
The fee the factor charges for its services. The longer an invoice takes to pay, the higher the discount.

DSO (Days Sales Outstanding)
A measure of how quickly your customers pay invoices, on average.

Due Diligence
The review process your factoring company uses to make sure your business is a good fit for funding.

Dun & Bradstreet
A business credit reporting agency that provides company background, credit history, and legal record information.

Factoring
When a business sells its invoices to a third party (the factor) in exchange for immediate working capital.

Funding
When the factor approves your submitted invoices, processes them, and sends you the advance funds.

Invoice
A bill for goods or services you’ve provided, it’s the document that indicates your customer owes you money.

Lockbox
A dedicated bank account where your customers send payments directly to the factoring company.

Net Terms
The payment terms you offer your customers (for example, Net 30 or Net 60 days).

No-Offset Letter
A written confirmation your customer signs verifying that invoices are correct, balances are valid, and there are no disputes or deductions.

Non-Factored Payment
Money received for an invoice the factor did not purchase but collected in the lockbox.

Notice of Assignment
A formal notification letter sent to your customers letting them know your invoices have been assigned to the factoring company and that all payments must go to the factor.

Notice of Assignment Language
The wording that must appear on every invoice sold to the factor, showing that payment is to be made directly to them.

Offset
When a customer claims they’re owed something (like a credit or return) and reduces their payment amount accordingly.

Pre-Billed Invoice
An invoice issued before work is performed or goods are delivered, typically not eligible for factoring.

Recourse
The period (often 90 days) after which an unpaid invoice is charged back, requiring you to repay the advance and fees.

Take-On
The process of onboarding a new factoring client.

Verification
The factor’s confirmation step — checking with your customers to make sure invoices are accurate, goods or services were received, and payment details are correct.