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Learn the Lingo: Common Terms Related to Invoice Factoring


September 6, 2019

If you’re new to invoice factoring, you might come across some terminology that you’ve never seen or heard beforeit can be a little bit like learning a new language. 

At Triumph, formerly known as Triumph Business Capital, we always want our clients (and potential clients) to understand what we’re talking about when we use factoring terms. With that in mind, let’s talk about what invoice factoring terms mean, so you can decide if factoring is right for your company. 

Factor/Factoring Company 

A factor or factoring company is a company that advances a percentage of the face value of an invoice to its customers. You sell your unpaid invoices to the factoring company, which then collects the outstanding balance from your client, the debtor (see below).   

For example, let’s say you’re a staffing company, and you just signed a long-term contract to supply developers to a large technology company. Great news for you, except that this tech company has 45-day terms.  

As a business owner, you have expenses, most importantly paying these developers every week. If you were to factor those invoices, you could get a debt-free advance on those invoices, while the factoring company waits out the payment terms and collects from your client.  

Most factoring companies also provide back office services including credit checks and collections. 

Invoice Factoring/Accounts Receivable Financing  

Invoice factoring and accounts receivable financing are interchangeable terms. Accounts receivable refers to your outstanding payments for work you’ve already completed, or services you’ve already rendered. When you work with an invoice factoring company, you are leveraging your accounts receivables and selling those in order to get an advance on your payment.  

Advance Rate 

The advance rate is the percentage of an invoice that the factoring company pays to the client when the invoice is factored. Advance rates can vary from client to client, but most range between 70% and 95%. 


When you factor your invoices, the factoring company collects the outstanding balance from your client. It’s important to remember that you maintain your relationship with your client directly. Think of the factoring company as an extension of your accounting department, working on your behalf to invoice and collect from your clients.   

Factoring companies like Triumph, formerly known as Triumph Business Capital do not charge you based on the number of clients you have. In fact, your rate is determined by the number of invoices you factor and the total invoice amount. Typically, the more you plan on factoring (in terms of volume and total invoice), the lower the rate.  


Debtor is the term the factoring company uses to refer to your clients, the ones they will collect from. It’s a term that’s also used by collection services. Technically, a debtor is any party that owes money to another party. You may see the term ‘debtor’ on some of the reports you receive from your factoring company. 

Account Executive/Customer Service Rep 

An account executive is a factoring professional who’s responsible for the day-to-day management of the client relationship, and most importantly the ones verifying and purchasing invoices. These are the individuals or teams that you will work with regularly, so it’s important to develop a strong relationship with them.  

Factoring Fee 

The factoring fee is the amount discounted from your invoice that goes to the factoring company.   

Rates can vary among factoring companies and are dependent on different criteria. As mentioned, the more you factor, typically the lower your factoring fee.  

For example, if you submitted a $2,000 invoice at a factoring fee of 3%, you would get $1,940 advanced if you are in a non recourse contract, with the factoring company collecting $60.  

Recourse Factoring 

Recourse factoring has a lot to do with risk, and how confident you are in your clients’ ability to pay on time.  

In a recourse factoring agreement, you are 100% responsible for payment if your client doesn’t pay the factoring company. That means that even if there is a dispute, or the company goes out of business, you’re on the hook.  

Now because of the degree of risk involved, rates in a recourse agreement tend to be lower. But, before signing a recourse deal, make sure you’re prepared to pay back whatever you were advanced if your client fails to pay after the payment terms have been exhausted.  

Aging Report  

Your aging report, or invoice aging report, is a list of all your invoices that remain unpaid. The factor can provide you with this report as needed, and in some cases you may be able to run an aging report using your accounting software or your client portal.  

Most typically, an invoice aging report would list invoices by debtor (your customer) in descending order of invoice date. The oldest invoices would appear at the top of the list. It’s also possible to run an aging report showing only past due invoices. 

Non-Recourse Factoring 

Non-recourse factoring is, as you might expect, the opposite of recourse factoring. In non-recourse factoring, the factoring company takes on the risk associated with collecting an invoice. If one of your customers goes out of business or declares bankruptcy, the factoring company takes the loss.  

Since non-recourse factoring carries more risk for the factoring company (and you!) than recourse factoring, the fees are typically a bit higher than they would be for recourse factoring. 


The reserve is the portion of an invoice that is not advanced, minus the factoring fee. For example, if you factored a $5,000 invoice and had an 80% advance rate, you would receive $4,000 as an advance, When the invoice is paid, the reserve (in this case, $850) would be returned to you, minus your factoring fee. Again, let’s assume 3%, so $150.   


Understanding factoring terms can also help you see how factoring your accounts receivable can help your business to grow. If you’d like to learn more about how Triumph, formerly known as Triumph Business Capital can help improve your cash flow, please click here now.