Invoice Factoring Terminology

Just like any business, invoice factors have their own terminology that may be confusing at times. Having a good understanding of the common terms being thrown around by invoice factoring companies will help you quickly navigate the space, as well as giving you a deep understanding of how an invoice factor views their business.


An advance is the amount of money your company is sent immediately upon factoring an invoice. The advance amount is typically 70-90% of the invoice total.


The reserve is the remaining 10-30% of the invoice that was not advanced by the invoice factor. This reserve amount is sent over, minus the invoice factor fee, upon receiving payment from the final payor.


Fees are what's charged by an invoice factor for the convenience of having the majority of your invoice's value advanced to you. Fees are simple and transparent, while other factors have fees that get pretty complicated, even with the large penalty or miscellaneous fees if the final payor pays late.

Seller Debtor

You. The customer. The person selling an invoice to an invoice factor.

Account Debtor (Final Payor)

Your customer. From the invoice factoring company's point of view, they have the seller debtor (you) and the account debtor (or final payor), which is your customer. Using "customer's customer" is too clunky for legal documents, apparently.


The documents and information required to request that an invoice factoring company review your company, invoices, the final payor, etc.


Otherwise known as a lien. It's a legal form that's filed in the state your business is registered in to let interested parties know that the invoice factor has an interest in the business property of the seller debtor. It is a way for an invoice factor to let other financial companies know that they have laid claim to the seller debtor's collateral so that the seller debtor can't use that same collateral to secure financing multiple times.

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