Analyze invoice factoring and accounts receivable financing terms for recourse provisions, hidden fees, reserve holdbacks, and customer notification requirements.
Built by Sergei Tokmakov, California-licensed attorney.
Invoice factoring agreements are complex financial instruments. These provisions can significantly impact your cash flow and customer relationships.
With recourse factoring, you're liable if customers don't pay. "Non-recourse" often has exceptions for disputes, bankruptcy, or fraud that still leave you on the hook.
Advance rates (70-90% of invoice) and factor fees (1-5% per month) are often quoted separately, obscuring the true cost. A 3% monthly fee is 36% APR.
Factors file UCC liens on your receivables. Filing fees, amendment fees, and termination fees can add $500-2000+ in unexpected costs. The lien also affects other financing.
Some factors require notifying customers that invoices are assigned, which can damage relationships. "Non-notification" factoring often costs more.
Agreements may require factoring a minimum dollar amount monthly. Failure to meet minimums triggers fees or allows the factor to terminate advantageous terms.
The reserve (10-30% of invoice) is held until customer pays. Release timing varies—some hold reserves for 30-90 days after payment "for chargebacks."
Common terms in invoice factoring agreements affecting business operations.
Owner personally liable for obligations.
All invoices secure all advances.
Factor can audit your books and AR.
Customer payments to factor-controlled account.
Limits on single-customer invoice percentages.
Maximum age for eligible invoices.
Factor can contact customers to verify.
Contract length and early exit fees.
Paste factoring agreement terms below to identify potentially problematic clauses.
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