What Is a Buyback Provision in a Factoring Agreement?
Buyback provisions let you repurchase invoices from your factor before the customer pays—here's when you'd want to and what it costs.
Key Takeaways
- ✓A buyback provision lets you repurchase a factored invoice before it's collected.
- ✓You'd use a buyback if the invoice is disputed or you want to remove it from the factor's portfolio.
- ✓Buyback price is the advance plus accrued factoring fees as of the buyback date.
- ✓Voluntary buybacks give you more control over invoice disputes.
- ✓Not all factoring agreements include buyback rights—ask before signing.
What Buyback Provisions Do
A buyback provision in a factoring agreement gives you the right (and sometimes the obligation) to repurchase invoices from the factoring company before collection.
In essence, you pay back the advance plus any accrued fees, and the invoice reverts to your ownership. You can then collect it yourself, negotiate a different resolution with your customer, or write it off.
When You'd Want to Exercise a Buyback
Invoice dispute: Your customer disputes the invoice and refuses to pay the factor. Rather than letting the dispute drag on (with accruing fees), you buy back the invoice, resolve the dispute with your customer directly, and resubmit a corrected invoice.
Customer requests direct payment: Some customers object to paying a third-party factor (often for policy reasons). You buy back the invoice, collect directly, and handle the customer relationship yourself.
Pre-recourse period: Before the recourse period expires, you may choose to buy back an invoice you know won't be paid in time—avoiding the automatic chargeback.
Relationship management: If a strategic customer relationship is at risk due to a factor collection call, a buyback lets you take control of the situation.
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