Factoring reserve explained

The reserve is the portion of invoice value held back until the customer pays and deductions are applied.

Key takeaways
  • Reserve protects the factor against fees, disputes, short pays, and chargebacks.
  • Cross-collateral reserve language can hold one invoice's reserve against another invoice's problem.
  • The reserve release rule is as important as the reserve percentage.
  • Ask specifically when reserve is released and what can delay it.

Reserve is the holdback. It protects the factor against fees, short pays, disputes, chargebacks, and other deductions.

The release rule matters because cash may be tied up even after the customer has paid if the agreement permits offsets across accounts.

Reserve questions

  • When is reserve released after payment?
  • Can one disputed invoice hold reserve from another invoice?
  • Are wire fees or other charges deducted before release?
  • How are short pays documented?

Related reading

Sources

  • International Factoring Association - International Factoring Association. Accessed 2026-05-19. Industry association source for factoring terminology and industry context.
  • Secured Finance Network - Secured Finance Network. Accessed 2026-05-19. Industry education source for secured finance and asset-based lending context.
  • Uniform Commercial Code Article 9 - Uniform Law Commission. Accessed 2026-05-19. Reference for secured transactions concepts including receivables and filings.
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.