Invoice Factoring Terms

Listed below are some of the most important terms to know when it comes to factoring. These terms, like creditor, debtor, factoring broker, etc., and their definitions will help you understand the factoring process more. Here are just a few terms:

Creditor – The business owner and/or company that sells its accounts receivable to an invoice factoring company.

Debtor – The entity that purchases goods or requests services from the creditor.
Invoice Factoring Advance Rate – The instant cash received upfront when the creditor sells its invoices to a factoring firm. The factoring advance rate is typically 70-90% of the face value of the invoices sold.

Factoring Broker – The entity that pairs the Creditor with a reputable invoice factoring company. In this case, Factor Finders is the factoring broker.
Invoice Factoring Company – A firm that specializes in providing working capital to other companies by purchases accounts receivable and advancing cash immediately.

Invoice Factoring – The process by which an invoice factoring company purchases a business owner’s accounts receivable and advances cash immediately.

Invoice Factoring Fee – A small charge assigned by the factor who purchases accounts receivable. Discount Fees are determined by the size of the invoice, the client’s customer’s creditworthiness and the length of time required to fulfill the invoice. The account creditor’s credit does not trigger any fees.

Non-Recourse Invoice Factoring – One type of invoice factoring whereby the invoice factor assumes all credit risk for any invoice it purchases, regardless of whether or not they are paid. non-recourse factoring usually translates into a higher invoice factoring fee.

Rebate – The difference between the invoice factoring advance rate and the invoice factoring fee.

Recourse Invoice Factoring – The client assume the risk of an invoice not being paid to the invoice factoring company. This type of invoice factoring that typically results in a higher risk for the client with much lower invoice factoring fees.
Reserve Account – The 10-30% that is held back from the initial advance to the client.