Glossary · product

Factor

Also called factoring company, the factor.

The company that buys receivables: the counterparty in a factoring relationship, and an entirely different thing from a factor rate.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

A factor buys invoices rather than lending against them. It advances a portion of face value on purchase, collects from your customer, and remits the remainder less its fee when payment arrives. Legally it is a sale, and the factor takes a UCC-1 on receivables and usually on more than that.

The varieties

  • Recourse or non-recourse, meaning whether you buy back an invoice the customer never pays
  • Notification or non-notification, meaning whether your customer is told to pay the factor
  • Spot or whole-ledger, meaning whether you sell selected invoices or commit the entire receivables book
  • Bank-owned or independent, which affects pricing, appetite and how fast decisions get made

Many factors specialize. Transportation, staffing, government contracting, apparel and construction each have their own funders who understand the billing conventions and the customers, and a generalist quoting your industry cold is usually the more expensive option.

Where this one catches people

"Factor" and "factor rate" share a word and nothing else. A factor is a company that buys invoices. A factor rate is a multiplier used to price a merchant cash advance, a product with no invoices in it at all. Sales reps use the second term constantly, which leaves business owners believing they are talking to the first, and the two products have almost nothing in common in cost, structure or risk.

Where you will meet this term

Invoice Financing

Read next

Advance rateThe share of an asset's eligible value a funder will put up front, used in factoring, asset-based lending and… Factor rateA multiplier applied to the funded amount that fixes the total dollars to be remitted. It is a price, not a r… FactoringSelling unpaid invoices to a third party at a discount for cash now, with the buyer collecting the money from… Full recourseThe arrangement in which the seller of a receivable, or the borrower, carries the loss if the money never arr… Notice of assignment (NOA)The written notice telling a customer that its invoices have been assigned to a factor and that payment must … ReserveThe portion of an invoice's face value a factor holds back at funding and releases, less fees, once the custo…

Factor — common questions

What does factor mean?

The company that buys receivables: the counterparty in a factoring relationship, and an entirely different thing from a factor rate.

Where does factor catch people out?

"Factor" and "factor rate" share a word and nothing else. A factor is a company that buys invoices. A factor rate is a multiplier used to price a merchant cash advance, a product with no invoices in it at all. Sales reps use the second term constantly, which leaves business owners believing they are talking to the first, and the two products have almost nothing in common in cost, structure or risk.

Is factor the same as an interest rate?

No. It is a multiplier applied once to the amount funded, with no time dimension. An interest rate is charged per unit of time on a balance that changes.

Which products does factor apply to?

Invoice Financing.

Is there a worked example of factor?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside factor?

Advance rate, Factor rate, Factoring, Full recourse, Notice of assignment.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.