Definition
The portion of an invoice held back by a factor until the customer pays.
Why it matters
Typically 5% to 20% of the invoice value.
Where it shows up in a deal
The reserve is an account in your name on the factor's ledger, created automatically every time an invoice is funded at less than face value. It is reported on your funding statement, drawn down by fees and adjustments, and released after the customer's payment is applied. Most disputes about factoring costs are really disputes about reserve activity.
What it affects
- It is your money held temporarily, not a fee and not a deposit you forfeit.
- It absorbs credit memos, short-pays, returns and rebates before any of them reach you as a bill.
- Under recourse, chargeback recoveries come out of it, so running it to zero removes your buffer.
- Agreements commonly permit offsets against the reserve for amounts owed on other invoices.
A worked example
A $320,000 schedule funded at an 88% advance puts $281,600 in your account and $38,400 in reserve. Against that reserve the factor holds $4,800 of accrued fees, a $2,100 credit memo and a $1,500 unreconciled short-pay, so $30,000 is released.
The common mistake
Related terms
- Advance RateThe percentage of an invoice's value a funder pays upfront.
- RebateThe portion of the reserve returned to a client after a customer pays.
- DilutionThe reduction in invoice value from credits, returns, discounts or disputes.
- ChargebackA deduction a customer, often a retailer, takes from an invoice payment.
Questions about how reserve affects your facility?
Call (929) 658-8087 or request a written quote — no obligation, no credit impact.
