Cash flow is the heartbeat of a business. Yet when customers pay late, even strong companies can feel the squeeze. Invoice factoring turns unpaid invoices into working capital, helping businesses move forward with the money they’ve already earned.

Many businesses use invoice factoring to improve cash flow and address cash flow shortages that result from delayed customer payments.

If you’re new to factoring, the terminology can sound technical. This guide breaks down the most common terms so you can read any factoring agreement with confidence.

Accounts Receivable (A/R)

Accounts receivable are the invoices your customers owe. Accounts receivable relate to the invoice factoring world through A/R financing, which allows businesses to access funds by leveraging their outstanding invoices. They represent completed work or delivered goods waiting to be paid. Factoring gives you immediate access to that money instead of waiting 30, 60, or 90 days for payment.

Advance Rate

The advance rate is the percentage of your invoice value (also referred to as invoice amount, total invoice, total invoice value, or invoiced amount) you receive upfront. For instance, an 85% advance on a $10,000 invoice means $8,500 lands in your account right away. The remaining balance arrives once your customer pays, minus a small fee.

Porter Capital provides next-day advances for invoices submitted by noon Central Time, giving you reliable access to cash when you need it most.

Factoring Fee (or Discount Rate)

This is the service cost, usually a small percentage of each invoice. Factoring fees, also known as the invoice factoring cost, are what factoring companies charge for their services. Factoring companies charge a percentage of the invoice value, typically between 1% and 5%, as a fee. It’s deducted from the final payment after your customer pays.

A good partner keeps this simple, with clear pricing and no hidden fees buried in fine print.

Recourse vs. Non-Recourse Factoring

This distinction matters.

• Recourse factoring means your business remains responsible if the customer doesn’t pay.
• Non-recourse factoring shifts that risk to the factoring company on credit-approved accounts.

A recourse factoring agreement requires your business to repay the factoring company if a customer fails to pay their invoice, while nonrecourse factoring means the factoring company assumes the loss if customers fail to pay. This difference affects both the risk you take on and the fees you pay.

Porter Capital offers non-recourse options for approved customers, protecting your business from unexpected losses.

Reserve (or Retainage)

A reserve is the portion of your invoice temporarily held until your customer’s payment clears. Once payment is received, that amount is released to you minus the factoring fee. Think of it as a short-term hold, not a cost.

Debtor (or Account Debtor)

The debtor is simply your customer — the company that owes payment on the invoice. Porter Capital provides credit checks on your account debtors at no charge, helping you make smart credit decisions before invoicing.

Verification and Notification

Before funding, some factoring companies verify invoices to confirm the details with your customers. Invoice processing and accounts receivable automation can help streamline the verification process and make collecting payment from customers more efficient. In notification factoring, your customer is informed of the payment change. In non-notification factoring, payments still go through the usual channels.

Porter Capital manages these steps with care, ensuring your customer relationships stay strong and communication stays professional.

Funding Turnaround

This term refers to how fast you receive money after submitting invoices. Finding a factoring company with a fast funding turnaround ensures immediate cash flow for your business.

Once your account is set up, Porter Capital advances funds the next business day for invoices received by noon Central Time. Quick, predictable timing means fewer disruptions to your operations.

UCC Filing (Uniform Commercial Code)

A UCC-1 filing establishes the factoring company’s legal claim on the receivables it funds. It’s standard practice for all secured financing. Porter Capital handles this during onboarding, reviewing existing liens and managing any required payoffs so setup is smooth and transparent.

Revolving Facility

A revolving facility is a type of business financing that provides ongoing access to funds as new invoices are generated. It functions like a flexible credit line tied to your receivables. As new invoices come in, you can submit them and continue receiving advances. Porter Capital’s facilities range from $25,000 to $30 million, scaling with your growth and keeping pace as your receivables expand.

Why These Terms Matter

Knowing the language of invoice factoring gives you control. When you understand what each term means, you can assess terms faster, compare providers clearly, and choose a partner that matches your goals.

Choosing the best partner is especially important for small businesses and their owners. Invoice factoring is a tailored solution that helps streamline cash flow management, reduce collection efforts, and provide reliable funding options for small businesses.

For more than three decades, Porter Capital has provided straightforward financing to businesses across industries. With next-day advances, non-recourse options, credit support, and facilities that grow with you, our approach is simple: give businesses access to the capital they’ve earned without adding debt or delay.

Clarity. Speed. Confidence.

Factoring should remove stress, not add confusion. When you know the terms, you know your options, and you can keep your business moving with confidence.

Talk to Porter Capital to learn how invoice factoring can turn your receivables into working capital in just days.