Factoring exit checklist
Use this checklist when exiting a factoring agreement. These steps cover contract termination, outstanding invoices, lien release, and customer notification. This is educational only and is not legal advice.
Contract terms review
| Step | Plain-English check | Note |
|---|---|---|
| Identify the exact notice period, required format, and delivery method stated in the agreement. | A notice sent by email when the contract requires certified mail may not be accepted. | |
| Calculate the exact date the notice must be received, not just sent. | Missing the deadline by one day can trigger automatic renewal for the full term. | |
| Read the fee calculation and confirm what events trigger it. | Some formulas multiply projected minimum fees by remaining months, not actual invoice volume. | |
| Check whether the agreement renews automatically and for what period. | Some contracts renew for a full year without a new signature if notice is not given in time. |
Outstanding invoices and reserve
| Step | Plain-English check | Note |
|---|---|---|
| Prepare a complete list of invoices currently funded under the agreement. | Funded invoices remain subject to the old agreement recourse period even after exit. | |
| Ask the factor for the current reserve balance and reserve release schedule. | Reserve is typically released only after all outstanding invoices are collected and recourse periods expire. | |
| Identify the recourse period for each outstanding invoice and when it expires. | Chargebacks can occur after you stop submitting new invoices if a recourse period is still open. | |
| Resolve any known disputes, short pays, or overfunded amounts before the exit date. | Unresolved disputes can delay reserve release or create post-exit obligations. |
UCC lien release
| Step | Plain-English check | Note |
|---|---|---|
| Identify the state, filing number, and collateral description of the factor UCC-1 filing. | You need the filing reference to track the UCC-3 termination. | |
| Ask the factor when and how they will file the UCC-3 to terminate the lien. | A new factor will typically require written confirmation of lien termination before funding. | |
| Search the UCC filing records in the filing state after the factor confirms termination. | A factor confirmation is not the same as a confirmed UCC-3 appearing in the public record. | |
| Confirm that the new factor will not file its UCC-1 until after the UCC-3 termination appears. | Overlapping UCC filings can create a priority dispute that delays funding from the new factor. |
Customer notification
| Step | Plain-English check | Note |
|---|---|---|
| Draft a new notice directing customers to send payments to the new factor or directly to you. | Payment sent to the old factor after exit may be applied to outstanding balances or held pending resolution. | |
| Get the new factor notice of assignment language before sending to customers. | Customers need a consistent and clear redirect. Conflicting notices create payment confusion. | |
| Time customer notifications so payment redirection occurs before the new factor funds. | Payments arriving at the old factor after a new factor has funded the same invoice can create a conflict. | |
| Follow up with key customers to confirm they received and processed the updated payment instructions. | A large customer paying to the wrong account after the switch can delay cash receipt significantly. |
Questions to ask before exiting
- What is the exact termination notice deadline and what form must it take?
- How is the early termination fee calculated and what triggers it?
- When will the reserve be fully released after the last funded invoice collects?
- How long after payoff will the factor file the UCC-3 termination?
- Who is responsible for sending the updated notice of assignment to customers?
Sources
- Uniform Commercial Code Article 9 - Uniform Law Commission. Accessed 2026-05-19.
- UCC Filing Search Information - National Association of Secretaries of State. Accessed 2026-05-19.
- International Factoring Association - International Factoring Association. Accessed 2026-05-19.
- Secured Finance Network - Secured Finance Network. Accessed 2026-05-19.
Financial disclaimer. This page is educational only and is not financial, legal, tax, accounting, or credit advice. Factoring terms vary by provider and contract. Read the full disclaimer.