A reserve is the portion of your invoice value that is held back at the time of your advance. You receive the residual, or the remaining portion due to you, once your customer pays the invoice in full, typically within one to two business days of that payment clearing.
What a Reserve is, in Plain Terms
When a factoring company advances funds against your invoice, you do not receive the full invoice amount upfront. You receive an advance, up to 98 percent of the invoice value. The remaining portion is held as a reserve until your customer actually pays. Any fees due are taken from this remaining portion, and you receive the residual payment after.
How Reserve Fits into an Advance
Every factored invoice splits into two pieces: the advance, which is released to you almost immediately after verification, and the reserve, which is held until after your customer pays. Together they add up to the full invoice value.
What Triggers Reserve Release
Your reserve is released once your customer pays the invoice in full to Charter Capital, according to the payment terms already in place on that invoice. There is no separate approval process or additional documentation required at this stage. As soon as payment is confirmed and applied to your account, the reserve release process begins.
This is different from the advance, which requires verification before release. By the time an invoice reaches the reserve stage, verification has already happened, and the customer has already paid, so the only remaining step is confirming the payment and calculating the exact release amount after the factoring fee.
How Long Reserve Release Typically Takes
Once your customer’s payment is received and confirmed, reserve funds are typically released to you within one to two business days. This is one of the fastest steps in the entire factoring process, since there is no verification or review required at this point, only confirming the payment has cleared and applying it to your account.
What Happens if Your Customer Pays Late
If your customer pays after the original invoice due date, your reserve is still released once payment is received, typically within the same window of one or two business days. Depending on your agreement, invoices that remain unpaid past their original term may be subject to an additional fee for the extended period, which is deducted before your residual is released. Your account manager can confirm exactly how this applies to your specific agreement.
What Happens if Your Customer Doesn’t Pay at All
If a customer ultimately fails to pay, what happens to your reserve depends on whether your agreement is recourse or non-recourse. Under a recourse agreement, you may be responsible for that invoice, which typically means the residual is not released and is applied against the outstanding balance. Under a non-recourse agreement, more of that risk sits with Charter Capital rather than with you. Your account manager can confirm which structure applies to your account and walk through exactly what the process looks like if a customer does not pay.
Example: How Factoring Reserves Work in Practice
Picture a $20,000 invoice factored under a 95 percent advance rate with a two percent factoring fee. You would receive an advance of $19,000 almost immediately after verification. The remaining $1,000 is considered the reserve.
When your customer pays Charter Capital the full $20,000, the two percent fee of $400 is deducted. That leaves a residual payment of $600 for your business, which typically lands in your account within one or two business days of the customer’s payment clearing.
Why Factoring Reserves Exist
A reserve exists because the factoring company is advancing money against an invoice that has not been paid yet. Advancing the full invoice amount upfront, with no reserve, would leave no cushion if a customer disputes an invoice, requests an adjustment, or pays a different amount than expected. The reserve protects that gap without requiring you to wait for full payment before receiving most of your invoice value. In practice, this means you get the overwhelming majority of your cash immediately, while a small reserve protects both sides of the transaction until the invoice is fully settled.
How Residual Release Shows Up in Your Account
Residual releases are typically itemized separately from your original advance, so you can see exactly which invoice a given release corresponds to and confirm the factoring fee that was deducted. Reviewing this alongside your original advance for the same invoice is the clearest way to see the full picture of what you received, in two payments, for a single invoice. If a residual release ever looks different than expected, your account manager can walk you through the specific invoice and confirm how the numbers were calculated.
Building Reserve Timing into Your Cash Flow Planning
Because your advance arrives almost immediately while your residual arrives after your customer pays, it helps to think of factoring as delivering your cash in two predictable stages rather than one lump sum. Businesses that plan around this two-stage timing, budgeting the advance as immediately available cash and the residual as cash that follows shortly after the customer’s payment terms run their course, tend to get the most consistent value out of factoring, since neither payment catches them off guard.
FAQs About What is a Reserve and When Do I Get it Back
Is a reserve a fee that Charter Capital keeps?
No. Moreover, at Charter Capital, we don’t generally use the word “reserve” because it can be misleading. While it’s often described as money being held back, there’s actually no money to hold back because the customer hasn’t paid yet. When the customer pays, there’s generally a positive balance left behind. Some of this does cover your factoring fee, but the rest is sent to you as a residual payment. .
How quickly is my reserve released after my customer pays?
Charter Capital typically sends you the residual within one to two business days of your customer’s payment being received and confirmed.
What percentage of my invoice becomes the reserve?
Since advances go up to 98 percent of the invoice value, the reserve is generally the remaining portion, though the exact split depends on the advance rate specified in your agreement.
Do I still get my residual if my customer pays late?
Yes, your residual is still released once payment is received, though invoices that run significantly past their original term may be subject to an additional factoring fee for the extended period.
What happens to my reserve if my customer never pays?
This depends on whether your agreement is recourse or non-recourse, since a recourse agreement may hold you responsible for an unpaid invoice while a non-recourse agreement shifts more of that risk to Charter Capital.
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