Factoring glossary: the terms in your contract, in plain English.

Account debtor

The customer that owes the invoice. In factoring, its credit matters more than yours.

Advance (advance rate)

The share of the invoice you receive upfront. At 1st Commercial Credit it's typically 75% to 98%, depending on the industry, and 100% with no reserve in trucking.

Aging report

The list of your unpaid invoices, grouped by how long they've been outstanding. Factoring companies ask for it to see how your customers pay.

Assignment of Claims Act

The federal law that sets how a contractor can assign the right to be paid on a federal contract. The Federal Acquisition Regulation (FAR) governs how it's done. Factoring for government contractors.

Bill of lading (BOL)

The shipping document that, signed at delivery, proves the goods arrived. In trucking and distribution, it's the backup behind the invoice.

Chargeback

When the factoring company returns an unpaid or disputed invoice to you, and you buy it back or replace it with another one.

Concentration

How much of your receivables come from a few customers. Many factoring companies avoid high concentration; in government work it's normal, and 1st Commercial Credit funds it.

Credit insurance

A policy that protects your receivables if a customer can't pay, under the terms of the policy. It can be combined with recourse factoring. Recourse, non-recourse and credit insurance.

Dilution

Anything that lowers what an invoice actually collects: short payments, deductions, returns, credit memos, early-payment discounts and disputes. It's the most common loss in factoring, and non-recourse doesn't cover it.

Discount fee

What the factoring company charges for buying the invoice. It isn't interest on a loan; it depends on how long the invoice takes to be paid, among other factors.

Factor

The factoring company. It buys your invoice, pays you upfront and collects from your customer.

Fuel advance

In trucking, cash for fuel advanced against a load before it's paid. At 1st Commercial Credit, up to 50% of the load value.

Invoice factoring

Selling your unpaid invoices at a discount to get paid now instead of in 30, 60 or 90 days. It's a sale, not a loan. How it works.

Lien

A lender's legal claim on your assets, such as your receivables. Invoices you factor must be free of liens, or the lender has to subordinate.

Line of credit

A revolving bank loan with a limit you draw on and repay with interest. Second position factoring doesn't work behind one. Factoring vs a line of credit.

Lockbox

The account where customers send their payments. In factoring, payments for factored invoices go to the factoring company; at 1st Commercial Credit, into a lockbox in your company's name.

Merchant cash advance (MCA)

An advance against your future sales, paid back from your daily or weekly revenue. It's high-cost, and second position factoring doesn't work behind one.

Non-notification factoring

Factoring where your customers aren't told. 1st Commercial Credit offers it to distributors.

Non-recourse factoring

The factoring company takes the loss if your customer can't pay because it became insolvent. It usually doesn't cover disputes.

Notice of assignment (NOA)

The one-time letter that tells your customer to pay the factoring company. The invoice also shows the payment address.

PACA

The Perishable Agricultural Commodities Act, the federal law that governs the produce trade. 1st Commercial Credit funds produce distributors through its affiliate, Vendor Pay Express.

Purchase order (PO) financing

Funding to produce or buy the goods for an order before it ships. It's a separate program from factoring, with its own review.

Prime contractor

The company that holds the main contract, with the government or a carrier, and hires subcontractors. Subcontractors can factor invoices to the prime.

Proof of delivery or performance

The documents that show the goods arrived or the work was done: signed delivery receipts, bills of lading, timesheets, work orders or completion certificates. Documents checklist.

Recourse factoring

If your customer doesn't pay within an agreed period, often 60 to 90 days, you buy back or replace the invoice. It's the most common structure.

Reserve

The part of the invoice held back until your customer pays. Then it's released to you, minus the fee.

Second position factoring

Factoring behind an existing bank or SBA term loan, without the bank subordinating. It doesn't work behind a line of credit or an MCA. How it works.

Selective factoring

Choosing which customers and invoices to factor, instead of all of them. 1st Commercial Credit offers it, as long as it isn't a one-time deal.

Subordination

An agreement where a lender with a lien accepts to stand behind another, so your receivables can be factored.

Term loan

A bank or SBA loan for a fixed amount, repaid in installments over a set term. Second position factoring can work behind it.

Trade payable financing

Credit to pay your suppliers early while you get longer terms. It can replace letters of credit.

UCC-1

The public filing that records a lender's lien on a business's assets, such as its receivables.

Verification

The factoring company's check that an invoice is valid and the work was delivered, before funding it.

Sources: 1st Commercial Credit's invoice factoring page and FAQ, its industry pages, its second position program and its articles on recourse and late payments, all read October 28, 2026.