Invoice Factoring Glossary & Knowledge Center

The account debtor is the customer that owes payment on an invoice. In a typical B2B factoring transaction, it is the business buyer that received the goods or services—not the company that issued the invoice.

Accounts receivable (A/R) are amounts a business has billed to customers for goods or services already provided but has not yet collected. Each unpaid customer invoice may represent part of the company’s receivables.

An accounts receivable aging report organizes unpaid invoices by how long they have been outstanding, often in time bands such as current, 1–30 days past due, and longer overdue periods. The report is a snapshot as of a particular date.

An advance is the initial portion of an invoice’s value that a factor pays to its client after purchasing or accepting the receivable under their agreement. The remaining amount, if any, is generally held as a reserve until the customer pays and the transaction is reconciled.

The advance rate is the portion of an invoice’s approved face value paid to the client initially. It describes the initial funding calculation, not the total amount the client ultimately receives after fees and reconciliation.

An assignment of accounts receivable is the transfer of specified rights in payment claims from one party to another. In factoring, the agreement and related documents describe which receivables are assigned and how the arrangement operates.

B2B describes a sale or service relationship in which one business supplies another business, rather than selling directly to an individual consumer.

Bad debt is an amount a business believes it is unlikely to collect from a customer. A balance may be treated as a loss after collection efforts and accounting review, but the timing and treatment depend on the circumstances and accounting policies.

The cash conversion cycle estimates how long cash is tied up in operating activity, from paying for inputs through completing a sale and collecting from the customer. It is commonly considered alongside inventory and payable timing.

The factoring client is the business that sells or assigns receivables to a factor under a factoring arrangement. The client is usually the supplier that issued the invoice to its own customer.

Collection is the process of obtaining payment of an amount due. It can include reminders, payment processing, resolving billing questions, and other follow-up appropriate to the relationship and agreement.

Customer concentration describes how much of a business’s sales or outstanding receivables depend on one customer or a small group of customers. It can be measured by comparing each customer’s share of revenue or A/R.

Creditworthiness is an assessment of a person’s or business’s capacity and history for meeting payment obligations. It can draw on financial information, payment experience, and other relevant evidence.

Dilution is a reduction in an invoice’s expected collectible amount caused by credits, returns, discounts, rebates, deductions, or similar adjustments. It is different from a customer simply paying late.

A discount fee is a charge associated with factoring an invoice, commonly calculated with reference to the invoice amount and how long it takes the customer to pay. The name and calculation method vary by provider and agreement.

A dispute is a customer’s objection to some part of an invoice or the underlying transaction. It may relate to the work performed, delivery, quantity, quality, price, authorization, or supporting documents.

An eligible receivable is an invoice that a particular factoring provider is willing to consider for funding under its criteria and the transaction agreement. There is no universal definition or checklist that applies to every provider.

A factor is a company that purchases or otherwise acquires accounts receivable under a factoring arrangement and provides funds to the business that issued them. A factor may also administer or coordinate payment collection as described in the agreement.

A factoring agreement is the contract that sets out the relationship between a business and a factor. It may address which receivables are involved, funding and fee calculations, reserves, recourse, notices, servicing, and ending the relationship.

A factoring fee is the charge for a factoring service or transaction. Depending on the agreement, it may be called a discount fee or use another structure, and the amount may depend on payment timing or other specified factors.

A factoring line is an arrangement under which a business can submit receivables for review and funding over time, subject to the agreement and provider’s ongoing criteria. It is not necessarily the same as a loan or a fixed amount of cash available regardless of invoices.

Funding is the transfer of money to a business. In factoring, it generally refers to the initial advance and any later release of reserve after the customer pays and the account is reconciled, according to the agreement.

An invoice is a billing document that records a seller’s claim for payment from a customer, usually describing goods or services supplied, the amount due, and payment instructions or terms.

Invoice factoring is a commercial financing arrangement in which a business sells or assigns qualifying invoices to a factor for earlier cash, typically receiving an initial advance and a later reconciliation after the customer pays. The exact structure and obligations depend on the agreement.

Invoice verification is a process for confirming details of an invoice and its underlying transaction, such as whether the customer recognizes the bill, the goods were delivered or work completed, and the amount is accurate.

A lien is a legal claim or security interest in property that may secure an obligation. The term can refer to different rights and procedures depending on the governing documents and law.

Invoice maturity is the date payment is due under the invoice’s agreed payment terms. It is distinct from the invoice date and from the date the customer actually pays.

A minimum volume requirement is a contractual or program condition that a client submit or factor at least a specified amount of invoices or business during a stated period. Some providers may use minimums; others may structure arrangements differently.

Net 30 is an invoice payment term that generally calls for the full invoiced amount to be paid within 30 days, subject to the wording of the parties’ agreement and how the starting date is defined.

Net 45 is a payment term generally indicating that the full invoiced amount is due within 45 days, with the starting point and any exceptions determined by the parties’ documents.

Net 60 is a payment term generally indicating that the full invoice amount is due within 60 days, according to the starting date and other conditions specified in the agreement.

Net 90 is a payment term generally indicating that the invoice amount is due within 90 days, as defined by the parties’ documents.

Non-recourse factoring is a factoring arrangement in which the factor assumes a specifically defined portion of credit-loss risk in circumstances set out in the agreement. It does not automatically protect the client from every reason a customer fails to pay.

A Notice of Assignment is a communication informing an account debtor that payment rights in specified invoices have been assigned and explaining where or how payment should be made. The content, delivery, and process depend on the transaction documents and applicable requirements.

Payment terms describe when and how a customer is expected to pay, including the due date, accepted payment methods, and any agreed early-payment discount or late-payment provision.

A purchase order (PO) is a buyer’s document requesting or authorizing the purchase of specified goods or services, often with quantities, prices, and delivery details. It is not an invoice: a PO is an order document, while an invoice bills for a sale or work performed.

Recourse describes a contractual right to require the client to repurchase, replace, or otherwise address an unpaid receivable in specified circumstances. The exact obligations and triggers are defined by the agreement.

Recourse factoring is a factoring arrangement under which the client may have to repurchase, replace, or otherwise resolve a receivable that remains unpaid in circumstances described by the agreement. The specific deadlines, exceptions, and remedies vary.

A reserve is the portion of an invoice’s value that is not paid as the initial advance and is held pending customer payment and transaction reconciliation. From it, applicable fees, adjustments, or other amounts specified in the agreement may be accounted for.

A schedule of accounts is a list or report identifying receivables presented for a transaction, often with details such as customer, invoice number, date, amount, and due date.

A short pay occurs when a customer remits less than the amount billed on an invoice. The difference may reflect an agreed credit, deduction, pricing disagreement, missing documentation, or an unexplained underpayment.

A term is a provision or condition in an agreement. “Term” can also mean the duration of an agreement, so the context matters.

The Uniform Commercial Code (UCC) is a set of model commercial laws adopted, with state-specific variations, across the United States. Its provisions address areas of commerce, including secured transactions; the governing law and facts determine how they apply.

A UCC-1 Financing Statement is a public filing commonly used to give notice that a secured party claims a security interest in described collateral. A filing is generally a notice document; it is not, by itself, the complete agreement that creates the claimed rights.

Working capital commonly refers to the resources available to fund day-to-day business operations. In accounting, it is generally calculated as current assets minus current liabilities; in everyday business discussion, it often means short-term operating liquidity.