Glossary · Factoring
Reserve
Also called: Reserve account, Holdback, Rebate
Definition
The reserve is the part of an invoice's value a factor holds back after the advance, releasing it to the carrier once the debtor pays, minus fees and chargebacks.
Worked example: on a $2,000 invoice with a 90% advance rate, the carrier gets $1,800 and $200 goes to reserve. The broker pays $2,000. With a 3% fee ($60), the factor releases $140 of the reserve to the carrier.
The reserve is the factor's first protection against short pays, disputes and chargebacks. Some factors release it invoice by invoice as debtors pay. Others keep a rolling reserve, a balance held across all open invoices and released on a schedule or when the relationship ends.
Model different advance and reserve settings in the factoring cost calculator, or see the advance rate and reserve guide for more worked examples.