Do you know your Factoring Agreement Terminology?

Last week, we discussed fees that you may see listed in your factoring agreement. This week, let’s talk about the agreement’s wording.

The factoring agreement – or contract – is a legally binding document drawn up by lawyers. And as is the case with contacts and documents of the sort, many of the terms listed can be confusing to the average reader. While this list is not exhaustive, understanding these commonly used terms will get you on your way to reading and comprehending your contract, and making sure you are getting the most out of your factoring agreement:


General Terms

Overarching terms that will be used throughout the document to address the parties involved.

  • Invoice Factor: Invoice factoring company, such as Crown Financial in Houston, Texas

  • Client: A client is you, the business owner.

  • Debtors or Accounts: Your business’s customers

  • Approved Accounts: Your customers that you are vetted as reliable payees, and the pool of companies from which you can invoice factor.


Financial Terms

Specific terms related to the exchanging of funds between you and the invoice factoring company.

  • Advance Rate: This is the percentage of money you will receive when an invoice is factored, generally around 80%.

  • Credit Line/Limit: Maximum amount of money you can fund through factoring.

  • Customer Limit: Just like a credit limit, but it is applicable to a specific company you work with.

  • Factoring Commissions: Specific fees that are payable to the invoice factoring company. These may be listed as monthly, yearly, one-time payments, etc. Be aware of the timing and frequency of these fees, because it matters just as much as the rates themselves.

  • Assignment: When an invoice is “assigned” to the factoring company for payment.

  • Minimum Annual Commission/Commitment: Minimum amount you must invoice factor per the term limit set, generally a year. Note: this means that if you decide to stop factoring invoices before the minimum is met, you may still owe more money, making your factoring less lucrative.

  • Recourse Period: The length of time a factoring company will keep your invoice open before requiring you to close it out, normally somewhere between 60-120 days.

  • Misdirected Payment: A payment that is paid by your clients to you vs. the invoice factoring company.


When working with a factoring company in Houston, be sure they are open and honest with you about all the contract details. Crown Financial has been in business for 25 years, and we are happy to walk you through the entire factoring process – from frequently asked questions to getting the factoring agreement signed. Give us a call today to get started!

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