Looking for advice on this situation. Factoring Company Collecting From My Client After I Repaid the Advance What are my options here?
Details: I'm in a situation where I need to understand my legal options. Has anyone dealt with something similar?
File a complaint with the CFPB immediately. Payment processors and banks respond much faster to regulatory complaints than to customer service tickets. I've seen $20K holds released within a week after a CFPB complaint honestly.
File a complaint with the CFPB immediately. Payment processors and banks respond much faster to regulatory complaints than to customer service tickets. I've seen $20K holds released within a week after a CFPB complaint.
I used invoice factoring once and it was a nightmare. The factoring company bought my $15K invoice at 85%, then when my client disputed the work (a legitimate scope disagreement we could have resolved), the factoring company came after ME for the full amount plus fees under the recourse clause.
Lessons learned: (1) Read the recourse vs. non-recourse terms carefully — recourse factoring means you're on the hook if the client doesn't pay, (2) the factoring company's aggressive collection tactics can damage your client relationships, (3) the effective interest rate when you calculate fees + discount is often 20-40% annualized.
Invoice factoring agreements are essentially secured transactions governed by UCC Article 9. A few important legal points:
Notice of assignment: Once your client is notified that the invoice has been assigned to the factor, they should pay the factor directly. If your client pays you instead after notice, the factor may have claims against both of you.
Recourse obligations: In a full recourse agreement, the factor can force you to buy back any invoice the debtor doesn't pay within the agreed timeframe. This is not just a risk — it's a near-certainty for disputed invoices.
If you're already in a dispute with the factor, check whether they complied with their own agreement terms. Factors sometimes fail to provide proper notice or exceed their contractual collection methods, which can give you defenses.
Commercial credit analyst here — I review factoring agreements for a living and wanted to add a few things that might help people stuck in disputes with their factors.
First, check whether your agreement is a true sale or a secured lending arrangement. This distinction matters enormously. In a true sale, the factor purchases the receivable outright and assumes the credit risk. In a secured lending arrangement, the factor advances money against the receivable but you retain the risk if the customer does not pay. Many agreements that call themselves “factoring” are actually disguised secured loans, and that reclassification changes your rights significantly under UCC Article 9.
Third, regarding the UCC termination statement point Carlos made above: if your factor refuses to file a UCC-3 termination within the 20-day window required by Section 9-513, you can file a correction statement yourself under Section 9-518. It does not remove the filing, but it puts third parties on notice that the filing is disputed. More practically, send your demand via certified mail and CC your state’s Secretary of State office. That usually gets the factor moving.
Pro tip: if your payment processor tells you "funds will be available in 90-120 days," that's usually a rolling hold. New transactions extend the clock. Stop processing through that account immediately.