How invoice factoring works
The basic process starts with an invoice, customer verification, an advance, customer payment, and reserve settlement.
Key takeaways
- Each step—submission, verification, advance, and settlement—can create a hold.
- Missing paperwork or a customer dispute can delay or block an otherwise eligible invoice.
- The reserve is not released automatically; release timing is governed by the agreement.
- Confirm the workflow in writing before the first invoice is submitted.
A typical workflow has five checkpoints: invoice submission, debtor review, verification, advance, and settlement after customer payment.
Each checkpoint can create a hold. Missing proof of delivery, a customer dispute, or an exceeded credit limit can make an otherwise ordinary invoice ineligible.
Operational checklist
- Submit invoice and support documents.
- Confirm the account debtor is approved.
- Check advance amount and reserve holdback.
- Track customer payment to the lockbox or assigned account.
- Reconcile fees and reserve release.
Related reading
Sources
- International Factoring Association - International Factoring Association. Accessed 2026-05-19.
- Secured Finance Network - Secured Finance Network. Accessed 2026-05-19.
- Uniform Commercial Code Article 9 - Uniform Law Commission. 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.