Has Your Business Outgrown Its Factoring Relationship? You’ve Got Options.

By: The OneAM Team
Published December 17, 2025 | Estimated read time: 5 min

For many small and midsize businesses (SMBs) that sell to enterprise customers, factoring is a common financing solution used for periods of growth or cash crunches.

As businesses grow, the restrictive terms, lack of control, and hidden fees of traditional factoring can conspire to make the solution feel more burdensome than beneficial. Many business owners find themselves looking for a way out of their factoring agreement.

In this blog, we dive into why businesses may want to part ways with their factor, how they can terminate their agreement, and how modern, flexible tools such as OneAM Early Pay can offer the same cash flow benefits without the constraints.

What is a Factoring Agreement?

A factoring agreement is a contract where a business sells its invoices (accounts receivable) to a third party (a “factor”) at a discount for immediate cash. Rather than waiting 30, 60, or 90-plus days to pay, the immediate cash boosts the business’s liquidity. The agreement includes the advance rate (percentage of the invoice that is paid upfront), fees, and the process for invoice submission. While it sounds appealing on the surface, there can be major catches.

Common Reasons for Ending a Factoring Agreement

• High Fees with Unfavorable Structure: High discount fees impact a business’s profits, especially those running on tight margins. Often these discount fees accrue for the collection period. This means that if your customer pays the invoice late, you bear the cost, sometimes in large increments (e.g. 1.5% for every 30-day period). As a result, your financing cost ends up much higher than the headline rate. Many business owners also underestimate the ancillary fees that add up, which can come in the form of lockbox fees, wire/ACH fees, monthly minimums, termination fees, or due-diligence fees.

• Loss of Control Over Customer Payments: Many factoring arrangements require an upfront Notice of Assignment (NOA), meaning your customers are instructed to send payments directly to the factor rather than your business. This can complicate payables for your customers or require lengthy setup times to even start factoring. In some instances, factors can be overly aggressive in pursuing invoice verifications and payments, damaging relationships with your customers. Some large enterprise customers have placed explicit prohibitions against factoring for this reason.

• Lengthy Contracts and Auto-Renewals: Factoring contracts often include 12 to 24 month terms with automatic renewal language which can lock your business in for an additional term. Hidden in the factoring agreement are clauses on required notice period. Once you’re past the window, your contract automatically renews. If your business is looking to terminate before the end of the term, there are usually high early-termination fees, or the factor may refuse to release your NOA and liens.

How to Terminate a Factoring Agreement

1. Review for Termination Clauses

Key things to look for include the contract term and expiration, the termination notice window, any early termination fees, buyout requirements for outstanding invoices, and any auto-renewal language if notice isn’t provided.

2. Send a Formal Termination Notice

If your contract requires written notice, follow the exact process noted (mail, email, or certified letter) and include the date you wish to terminate the agreement. Also include a request for the full accounting of outstanding balances, reserves, and fees.

3. Ensure that Outstanding Obligations are Paid and Obtain a Termination Letter

Most factoring companies require a full repayment of any open invoice advances and, if applicable, payment of early termination fees. Once these outstanding obligations are paid off, ensure that you obtain a termination letter and proof that the NOA and liens are released. You can also request a detailed payoff schedule and reconciliation report.

4. Communicate with Your Customers

To avoid errors in payment, notify your customer’s AP team of the transition and provide updated remittance instructions on your company letterhead. This ensures that any payments made post-factoring should flow back to your business. Your customer may continue to pay your factor as they may not have changed their payment records as quickly. Typically, factors will have a process to remit any customer payments to you after you’ve terminated the factoring relationship.

5. Find an Alternative Financing Solution

Plan your next working capital solution, especially if you rely on accelerated cash flow. For businesses selling to large enterprises, the most natural transition is to a supplier-controlled early payment program.

A Modern, SMB-Friendly Alternative: OneAM Early Pay

If you are ending your factoring contract because of restrictive terms, loss of control, or unpredictable pricing, OneAM Early Pay solves these pain points while still giving you fast access to cash.

OneAM Early Pay is a receivables finance solution that gives you access to quicker, more flexible working capital. You gain the benefits of accelerated cash flow without the downsides of factoring. Key differences include:

• Supplier controlled: You choose which invoices get paid early.

• Transparent, fair pricing: No hidden fees, monthly minimums, or late fees. You know exactly what you’re paying when you accept an offer.

• No customer disruptions: Your customers keep paying you as they do today.

• Fast setup and easy to use: Onboard in just 15 minutes without requiring major process changes.

• Grows with your business: Pricing gets better as you build a transaction history with OneAM.

Looking for an Alternative Solution to Factoring?

Factoring can be helpful for early-stage cash flow challenges, but many SMBs eventually outgrow the solution.

By reviewing your contract, planning ahead, and setting up an alternative financing solution, you can successfully transition from factoring.

If you’re looking for a solution built specifically for SMBs, OneAM Early Pay offers the cash flow acceleration you need with simpler terms, clearer pricing, and complete control. If you’d like to learn more, reach out to us at info@oneam.us or visit our website.