Factoring contract checklist
Use this checklist to slow down a contract review and identify terms that need direct answers. It is educational only and is not legal advice.
Money terms
| Clause | Plain-English check | Red flag note |
|---|---|---|
| Confirm the formula, debtor differences, reserve holdback, and whether the percentage can change after credit review. | A high advance rate can still be costly if fees, reserves, and deductions are heavy. | |
| Find when reserve is released after payment and whether other invoices can hold it back. | Cross-collateral reserve language can delay cash unexpectedly. | |
| Identify the fee period, base amount, tiers, and extra charges. | A low quoted fee can change if the customer pays late. | |
| Check whether unused volume creates a minimum fee. | Minimums can matter during slow months. |
Risk allocation
| Clause | Plain-English check | Red flag note |
|---|---|---|
| Identify when unpaid invoices must be repurchased or replaced. | The clock may start on invoice date, purchase date, or due date. | |
| List every trigger for repurchase, reserve use, or replacement invoices. | Disputes and offsets are common triggers. | |
| Confirm who contacts the customer and how disputes are documented. | Unclear dispute steps can delay reserve release. | |
| Read the guarantee scope and attorney-fee language. | A business receivables transaction can still create personal exposure. |
Control and notices
| Clause | Plain-English check | Red flag note |
|---|---|---|
| Review collateral description, filing states, and termination process. | Broad filings can affect other credit relationships. | |
| Confirm when customers are notified and what they are told. | Payment confusion can slow settlement. | |
| Identify lockbox, remittance, and customer contact rules. | Collection control can affect customer relationships. |
Term and exit
| Clause | Plain-English check | Red flag note |
|---|---|---|
| Find the fee formula and events that trigger it. | Exit costs can be larger than expected. | |
| Check automatic renewal language. | Renewal can occur without fresh signature. | |
| Calendar the exact notice deadline. | Missing the deadline can extend the contract. | |
| If applicable, confirm repayment, caps, and deduction timing. | Fuel advances can reduce the next funding event. |
Questions to ask before signing
- Which section controls recourse and chargebacks?
- What is the full fee schedule, including non-factoring charges?
- What exactly must happen before reserve is released?
- How is the UCC filing terminated after payoff?
- Who communicates with customers and how is payment direction changed?
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.