![]() ![]() ![]() These thresholds consist of a minimum monthly volume of sales that the client agrees to factor.Īfter credit checks and analysis and based on debtors’ credit risk assessment, factors establish maximum purchase amounts and facility line limits. The collected amounts exceeding the required reserve amount are released to the client on an ongoing basis, typically once a week on a pre-agreed day.Ĭontracts typically stipulate minimum purchases. This reserve is cash collateral that the factoring company holds to protect its interests in the case payments cannot be collected, or other possible disputes arise. Most contracts, especially the full recourse ones, authorize the factor to require and maintain a reserve amount. Here you can find more information about factoring advances and their calculation. The difference between the purchase price and the advance minus fees and required reserve amounts is sent by the financial institution to the customer when the debtor pays.Īdvance rates, typically from 60% to 99%, tend to depend on the industry to which the client belongs. This money received upfront is not the total cash the client gets. That percentage multiplied by the purchase price is the upfront cash the client receives at the time of the accounts receivable purchase transaction. The advance is a percentage (rate) of the purchase price of outstanding invoices sold. Conditions vary from factor to factor, and our intention in this article is to detail the most widely found in the industry.Įach invoice’s purchase price is calculated by taking the original invoice’s face value and deducting all the discounts the client offers to the debtor. Please be aware that these are not necessarily the terms included in our contracts. In this section, you can find widely used factoring terms and conditions included in factoring contracts. Typical Terms Included in a Factoring Contract ![]()
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