Glossary
41 terms every shop owner runs into. Written in plain English by consultants, not bankers.
The percentage of an invoice's face value the factor sends you upfront.
If your advance rate is 90% and you factor a $50,000 invoice, you receive $45,000 within 24 hours of verification. The remaining $5,000 is held in reserve until your customer pays. Advance rates for manufacturers typically range 80–95%, with higher rates for strong commercial or government receivables.
Related: Reserve, Invoice Factoring
A revolving line of credit secured by receivables, inventory, and equipment.
ABL typically becomes an option once your borrowing needs cross roughly $1M–$2M and you have organized financials, monthly reporting, and a controller or CFO. It costs less than factoring but adds covenants, field exams, and borrowing-base reporting.
Related: Borrowing Base, Field Exam
A report grouping unpaid invoices by how long they've been outstanding (0–30, 31–60, 61–90, 90+).
The single most-requested document in any factoring or ABL underwriting. Clean, current aging reports get you funded faster.
The formula that tells an ABL lender how much you can draw today.
A typical formula: 85% of eligible receivables + 50% of eligible inventory − reserves. You submit a borrowing-base certificate weekly or monthly, and availability moves with your book.
Related: Asset-Based Lending (ABL), Field Exam
A broker submits your file to whoever pays them most. A consultant matches you to the right program and stays with the file.
Regulation of both is light. What matters: does the person disclose how they're paid, do they represent more than one funder, and do they stay involved after the deal closes? We disclose compensation, work with dozens of funders, and stay on the account through renewal.
The share of your receivables tied up in a single customer.
Most factors cap concentration at 25–40% of the outstanding book per account. High concentration isn't a dealbreaker—it just changes pricing and reserve structure.
Related: Invoice Factoring
A deduction a customer takes off an invoice for a shortage, damage, MAP violation, or late shipment.
Chargebacks are common with big-box retailers and can eat 3–8% of gross. Factors track them against the reserve and, in retail-heavy accounts, may hold higher reserves.
Related: Reserve
An insurance policy that pays out if a covered customer becomes insolvent.
Bundled with non-recourse factoring or purchased standalone to protect against a large customer bankruptcy. Especially useful when 20%+ of your book sits with one buyer.
Related: Recourse vs Non-Recourse, Concentration
The average number of days it takes you to collect an invoice.
DSO = (Accounts Receivable / Total Credit Sales) × Days. A DSO of 55 means you're financing 55 days of your customer's operations. Factoring effectively drops your DSO to 1–2 days without changing your customer's terms.
Related: Invoice Factoring
How many times over your cash flow covers your loan payments.
DSCR = EBITDA / Annual Debt Service. Bank lenders typically want 1.25× or higher. Factoring doesn't use DSCR because it isn't debt.
Related: Line of Credit, SBA 7(a) Loan
Any funding you repay from operations—loans, leases, lines, and factoring facilities.
Debt keeps ownership intact and, when structured to match your cash cycle, is far cheaper than equity. The wrong debt (daily-repayment MCAs, mismatched terms) can be worse than equity; the right debt is the cheapest capital in the stack.
Related: Equity Financing, Merchant Cash Advance (MCA)
A loan or lease used to acquire machinery where the equipment itself is the primary collateral.
Terms of 3–7 years are typical for CNCs, presses, injection-molders, packaging lines, and material handling. Structures include EFA (equipment finance agreement), $1-out lease, FMV lease, and TRAC leases for titled equipment.
A loan structured like a lease, where you own the equipment from day one.
You take title at funding and depreciate the asset. Payments are fixed. Simpler documentation than a bank loan and faster to fund—often 3–7 business days.
Related: Equipment Financing
Selling a piece of your company in exchange for cash.
Venture capital, private equity, and angel investment are equity. Every dollar you take dilutes your ownership and typically comes with board seats, control provisions, and an eventual exit expectation. Every program we work with is debt-based—you keep 100% ownership.
Employer Identification Number—your business's federal tax ID.
Required on every funding application. If you're a sole proprietor, get an EIN before applying; it separates your business identity from your SSN.
An on-site audit an ABL lender runs on your AR, AP, and inventory before and during the facility.
The exam validates your reporting, tests your controls, and confirms the collateral exists. Expect one at close and typically annually thereafter.
Related: Asset-Based Lending (ABL), Borrowing Base
Selling your unpaid B2B invoices to a factor at a small discount so you get most of the cash today instead of waiting 30–90 days.
Invoice factoring is a funding tool where a factoring company advances you a percentage of an invoice (typically 80–95%) as soon as you issue it, then collects payment from your customer on the original terms. When the customer pays, you receive the reserve minus a small factoring fee. It is not a loan, so it does not sit on your balance sheet as debt, and approval is based mainly on the credit quality of your customers—not your credit score.
Related: Advance Rate, Reserve, Notice of Assignment (NOA), Recourse vs Non-Recourse
A written agreement between two or more lenders defining who has rights to which collateral first.
Required when you have both a bank line and a factor, or an equipment lender and an ABL. Common structure: bank/ABL on AR + inventory, equipment lender on machinery.
Related: UCC-1 Filing
A bank address (or account) where your customers send factored payments.
The factor uses a lockbox to receive and post payments quickly, which shortens the reserve release cycle and reduces disputes over who received what.
Related: Notice of Assignment (NOA)
A bank's written promise to pay a supplier when documented conditions are met.
Common in international sourcing. Your funder issues an LC to your overseas supplier; when the supplier ships and presents documents proving compliance, the bank pays. Reduces the supplier's risk and lets you buy on better terms without wiring cash upfront.
Related: Purchase Order (PO) Financing
A revolving credit facility you draw against as needed and repay as you collect.
Bank lines are the cheapest form of revolving credit but require two to three years of profitable financials, strong DSCR, and typically a personal guarantee. Factoring often fills the same job for growing shops that don't yet qualify for a bank line.
Related: Asset-Based Lending (ABL), Invoice Factoring
A daily-repayment advance priced with a factor rate—expensive, and usually the wrong tool for a manufacturer.
MCAs debit your bank daily or weekly and can push effective APRs well over 60%. They almost never fit a B2B manufacturer that invoices on terms; factoring the same receivables is dramatically cheaper. We generally steer manufacturers away from MCAs.
Related: Working Capital Loan, Invoice Factoring
The floor of invoice volume a factor expects you to submit each month.
If you fall below the minimum, you pay the fee as if you had hit it. Negotiate this against your realistic slowest month, not your average.
Related: Invoice Factoring
The letter that tells your customer to pay the factor directly.
When you factor an invoice, your customer receives a Notice of Assignment redirecting payment to a lockbox controlled by the factor. This is standard in B2B and does not signal financial trouble—most large buyers process dozens of NOAs a month.
Related: Invoice Factoring, Lockbox
A one-time fee some lenders charge to set up a facility.
Ranges 0.5%–3% on term loans and ABL facilities. Manufactor Finance does not charge application, origination, or closing fees — our funding partners fairly compensate us for our part only after you actually receive your funds, and nothing additional is required from you.
Funding to pay your suppliers so you can fulfill a confirmed customer PO you couldn't otherwise afford.
PO financing pays your suppliers directly (often via letter of credit) against a confirmed purchase order from a creditworthy buyer. Once you deliver and invoice, the transaction usually rolls into factoring to close the loop. It is not working capital for overhead—it is transaction-specific funding for a specific order.
Related: Letter of Credit (LC), Invoice Factoring
Invoicing in stages as milestones are met on a long-cycle build.
Common in aerospace, industrial machinery, and custom fabrication. Not every factor advances against progress bills—the ones that do require the milestone to be accepted by the customer before advance.
Related: Invoice Factoring, Retainage
The owner's promise to repay if the business can't.
Nearly every non-bank facility under $5M requires a validity or full PG from majority owners. Non-recourse factoring on the credit side does not remove the fraud/validity guarantee.
Related: Recourse vs Non-Recourse
The portion of an invoice held back until the customer pays.
The reserve is invoice face value minus the advance. When your customer pays the factor, the reserve is released to you, less the factoring fee. Reserves protect the factor against short-pays, disputes, and chargebacks.
Related: Advance Rate, Chargeback
Who eats the loss if a customer never pays: you (recourse) or the factor (non-recourse).
In a recourse arrangement, you must buy back or replace any invoice a customer fails to pay. In a non-recourse arrangement, the factor absorbs credit losses on approved accounts—typically limited to customer insolvency, not disputes. Non-recourse costs slightly more but shifts credit risk off your balance sheet.
Related: Invoice Factoring, Credit Insurance
A percentage of each invoice the customer holds back until final acceptance.
Typical on capital equipment builds and construction-adjacent manufacturing—often 5–10% held for 30–180 days after delivery. Factors usually do not advance against retainage; you finance it separately or wait for release.
Related: Progress Billing
A program the buyer sets up so their suppliers can get paid early at the buyer's credit rate.
Large OEMs and retailers sponsor supply-chain finance platforms (Taulia, PrimeRevenue, C2FO) that let you take early payment on invoices at a discount tied to the buyer's rate—often cheaper than traditional factoring for that customer's invoices.
Related: Invoice Factoring
Selling machinery you already own to a funder and leasing it back for working capital.
Useful when you have paid-off equipment but need cash for growth. You keep operating the equipment and pay a monthly lease; the funder holds the title until the buyout at end of term.
Related: Equipment Financing
A general-purpose SBA-guaranteed term loan up to $5M for working capital, acquisitions, or equipment.
Longer terms (10 years working capital, up to 25 years real estate) and lower down payments than conventional bank debt, in exchange for personal guarantees and more paperwork. Approval usually runs 45–90 days.
Related: SBA 504 Loan
A fixed-rate SBA program for owner-occupied real estate and large equipment purchases.
Structured as 50% bank / 40% CDC / 10% borrower. Long amortization and below-market fixed rates make it the go-to for buying a manufacturing building or a $500k+ machine you plan to keep.
Related: SBA 7(a) Loan
Factoring a single invoice or a single customer instead of your whole book.
More expensive per invoice than a full facility but useful for a one-off big order. Not every factor offers spot; whole-ledger relationships get the best pricing.
Related: Invoice Factoring
A non-binding written summary of proposed pricing and structure.
You'll receive a term sheet after initial underwriting. Review advance rate, fees, reserve, term length, termination fees, and minimum monthly volume before signing.
The fee to exit a factoring agreement early.
Common on multi-year agreements. Can be a flat fee, a percentage of the facility, or lost minimum fees for the remainder of the term. Always negotiated before signing.
Related: Invoice Factoring
A public filing that puts other creditors on notice a lender has a security interest in your assets.
Every factor and ABL lender files a UCC-1 on the collateral they're advancing against. Existing UCC filings from prior lenders must be released or subordinated before a new facility can close.
Related: Intercreditor Agreement
The funder's review of your business, financials, customers, and collateral before approval.
For factoring, underwriting focuses on your customer credit and invoice quality; approval in 3–7 days is typical. For ABL and bank debt, expect 30–60 days plus a field exam.
Short-term funding used to cover payroll, materials, and overhead—not equipment or real estate.
Terms of 6–24 months are common. Best used to bridge a known cash gap (a big order, seasonality, a payroll cycle), not to plug an ongoing operating loss.
Related: Merchant Cash Advance (MCA), Line of Credit
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