Invoice Factoring Agreement Checklist for Business Owners

This guide is a contract-review preparation tool. It helps a business locate provisions and prepare questions; it does not interpret a particular agreement or tell a business whether to sign it.

What This Resource Can Help You Do

Use the worksheet to record where a term appears, what the provider has explained, and what remains unclear. Review the agreement, schedules, fee exhibits, customer limits, and other incorporated documents together.

Why the Actual Agreement Controls

A proposal, conversation, or summary may not contain every condition. The written agreement controls the parties' actual rights and obligations, including remedies, reserve deductions, notice deadlines, and customer-payment procedures.

When to Consult Qualified Advisers

A qualified attorney, accountant, or financial adviser can help assess legal, accounting, tax, and business consequences specific to the company and its agreement.

First identify what the provider may purchase or finance, which receivables are included, and which customer or invoice conditions can prevent approval.

Which Invoices May Be Purchased

Check how the agreement defines an eligible invoice, including customer type, completion of goods or services, payment terms, documentation, age, and the absence of unresolved conditions.

Ineligible Invoices and Customer Exclusions

Look for exclusions involving disputed, foreign, related-party, government, progress-billed, previously assigned, or otherwise restricted receivables. Ask how an invoice becomes ineligible after funding.

Customer Credit Limits and Concentration Restrictions

Find each customer's approved limit and any concentration rule. Confirm whether a limit can change, whether only part of an invoice is eligible, and how a related group of customers is treated.

Verification and Supporting-Document Requirements

Confirm which contracts, purchase orders, delivery records, acceptance records, timesheets, or customer confirmations may be required and who is responsible for providing them.

Advance-Rate Provisions

Confirm what amount the advance percentage applies to, when the advance is released, whether different customers receive different treatment, and what conditions can delay or reduce funding.

How the Reserve Is Established

Identify how the reserve is calculated and whether it can change for customer risk, concentration, disputes, deductions, or other agreement-defined reasons.

Customer Payment Procedures

Determine where customers must send payment, whether a lockbox or designated account is used, what notices are required, and how misdirected or late payments are handled.

Reserve Settlements and Releases

Ask when settlements are prepared, which fees and adjustments may be deducted, how statements are delivered, and what happens if the provider disputes the amount available for release.

Compare the complete pricing method rather than relying on a headline percentage. Confirm the calculation base, timing rules, partial periods, and every additional charge.

How the Main Factoring Fee Is Calculated

Ask whether the fee applies to invoice face value, an advance, or another amount; which date starts the fee period; and whether additional periods are charged in full or prorated.

Minimum-Volume or Minimum-Fee Requirements

Locate monthly, account-level, invoice-level, or volume commitments. Confirm whether a shortfall creates a charge and how long the commitment lasts.

Additional Transaction and Administrative Fees

• Ask about setup, due-diligence, verification, processing, wire, ACH, lockbox, or expedited-funding charges.
• Ask about renewal, early-termination, filing, lien-release, documentation, audit, or account-maintenance charges.
• Confirm which fees may be deducted from the reserve and whether they can change under the agreement.

Questions to Ask About the Total Cost

Recourse and Non-Recourse Provisions

Identify whether the arrangement is described as recourse or non-recourse, then read the detailed conditions. The label alone does not explain every event that may create a repurchase or chargeback obligation.

Covered Credit Risks and Exclusions

Ask which credit events may be covered, what notice or timing conditions apply, and which commercial, performance, documentation, dispute, or dilution risks remain with the business.

Repurchase and Chargeback Provisions

Locate the events that permit a repurchase, debit, reserve deduction, or chargeback. Confirm how the amount is calculated, how notice is delivered, and whether the provider can offset it against other reserves.

Disputes, Credits, Offsets, and Dilution

Review treatment of customer disputes, returns, credits, allowances, rebates, offsets, counterclaims, and other reductions between the invoice amount and the amount collected.

Initial Contract Length

Record the start date, initial term, any ramp-up or minimum period, and whether the term applies to all receivables or only a stated commitment.

Automatic Renewal

Find the renewal period, notice deadline, delivery method, and any change to pricing or obligations at renewal.

Termination Rights and Fees

Confirm who may terminate, which events permit termination, whether an early-termination fee or minimum is due, and how funded invoices are settled after termination.

Notice Deadlines and Delivery Requirements

Record required notice periods, permitted delivery channels, addresses, and when notice is considered received. Keep evidence of any notice sent.

UCC and Security-Interest Provisions

Identify the collateral description, filing permissions, release process, and any restrictions on other financing. Security interests and lien priority are legal matters requiring advice specific to the business.

Personal Guarantees, If Applicable

Check whether an owner or other person guarantees obligations, which obligations are covered, how long the guarantee lasts, and what releases or continuing liability the document describes.

Default Events and Remedies

Locate default triggers, cure periods, funding suspension rights, reserve holds, acceleration, collection rights, indemnities, and other remedies. Do not assume a remedy is available unless the written documents provide it.

Other Financing and Lien Restrictions

Ask whether the business may borrow, grant another security interest, change banks, or sell receivables elsewhere. Resolve conflicts before representing an invoice as unencumbered.

Required Financial and Receivables Reporting

List recurring reports, aging schedules, financial statements, bank records, invoice registers, and deadlines. Confirm the format, delivery channel, and consequences of an incomplete report.

Customer Notices and Payment Instructions

Confirm who sends notices, what the business may tell customers, how payment instructions change, and how the parties coordinate customer questions or disputes.

Audit, Verification, and Access Requirements

Review rights to inspect records, contact customers, verify invoices, visit premises, or obtain third-party information, along with any related charges or confidentiality provisions.

Changes the Business Must Report

Identify required notice for ownership changes, customer disputes, adverse events, new liens, returned goods, changes to payment accounts, or any fact that could affect an invoice.

Terms to Confirm in Writing

Ask for written confirmation of any term that appeared in a proposal or conversation but is missing, ambiguous, or inconsistent in the agreement.

Questions to Raise With the Provider

Ask who makes eligibility and credit decisions, how exceptions are documented, how reserve statements are corrected, and what happens when customer facts change.

Documents to Retain

• The signed agreement and every schedule, exhibit, amendment, and incorporated policy.
• The proposal, fee explanation, customer limits, reserve terms, and written answers.
• Notices, settlement statements, verification records, and termination correspondence.