How to Read a Factoring Term Sheet
Factoring term sheets look simple but contain three or four lines that decide whether the deal is fair or expensive. Here's what to check line by line before you sign.
Advance rate
The percentage advanced per invoice. 85–90% is standard for commercial B2B. Higher for government or investment-grade customers. If a term sheet quotes 70–75%, ask why—usually customer credit or industry concerns.
Factoring fee structure
Look for the base rate and how it steps. Common: 1.5% for the first 30 days, +0.5% per 15 days thereafter. Avoid daily fee structures that quietly compound—they can double the effective rate on invoices that pay in 60+ days.
Minimum monthly volume
The floor you commit to factor each month. If you fall short, you pay as if you hit it. Negotiate against your realistic slowest month, not your average.
Term length and termination
Standard term: 12–24 months. Termination fees often equal remaining minimum fees plus a flat exit fee. Negotiate a 60–90 day out clause with notice.
Reserve and holdback
Reserve is the unadvanced portion held until customer payment. Holdback is an additional buffer held against future disputes. Both should release on a defined schedule—if the term sheet is vague, get it in writing.