Definition
In factoring, the customer who owes payment on the invoice.
Why it matters
Factors underwrite the debtor's credit more heavily than the seller's.
Where it shows up in a deal
In a factoring agreement your customer is the account debtor, and the definitions section is where that is spelled out. Credit approval, credit limits, verification calls and the notice of assignment all attach to the debtor rather than to you, which is why underwriting spends more time on their file than on yours.
What it affects
- The debtor's credit, not yours, determines whether an invoice can be funded and at what advance.
- Rights the debtor holds against you - setoff, warranty claims, rebates - travel with the receivable.
- A debtor that disputes an invoice makes it ineligible regardless of who is right.
- Debtor-level credit limits cap how much you can ship on terms, not only how much you can fund.
The common mistake
Related terms
- VerificationThe process of confirming an invoice with the customer before funding.
- Notice of AssignmentA letter telling customers to pay the factor instead of the business.
- Concentration LimitA cap on how much of a facility can be tied to a single customer.
- Eligible ReceivablesInvoices that meet a funder's criteria for advancing.
Questions about how debtor affects your facility?
Call (929) 658-8087 or request a written quote — no obligation, no credit impact.
