A factor is a person who sells goods for a commission. A factor takes possession of goods of another and usually sells them in his/her own name. A factor differs from a broker in that a broker normally doesn't take possession of the goods. A factor may be a financier who lends money in return for an assignment of accounts receivable (A/R) or other security.
Many times factoring is used when a manufacturing company has a large A/R on the books that would represent the entire profits for the company for the year. That particular A/R might not get paid prior to year end from a client that has no money. That means the manufacturing company will have no profit for the year unless they can figure out a way to collect the A/R.
This form is a generic example that may be referred to when preparing such a form for your particular state. It is for illustrative purposes only. Local laws should be consulted to determine any specific requirements for such a form in a particular jurisdiction.
A factoring agreement template is a legal contract between a company and a factoring company that outlines the terms and conditions of a factoring arrangement. Factoring is a financial service where a company sells its accounts receivable (invoices) to a factoring company at a discounted rate in exchange for immediate cash flow. This arrangement helps companies improve their working capital and maintain a steady cash flow. The factoring agreement template typically includes the following key elements: 1. Parties involved — Clearly identifies the company seeking factoring services (referred to as the "Client") and the factoring company (referred to as the "Factor"). 2. Terms of the agreement — Specifies the effective date of the agreement, the duration or termination conditions, and any renewal options. 3. Scope of services — Outlines the nature of the factoring services provided, such as invoice verification, credit management, debt collection, and reporting. 4. Funding terms — Describes the amount and percentage of the invoice value that the factor agrees to advance to the client. 5. Fee structure — States the factoring fees, including any discount rates, transaction fees, reserve percentages, or administrative charges. 6. Obligations and representations — Defines the responsibilities of both parties, including the client's obligation to provide accurate and complete invoices, notify the factor of any invoice disputes or discrepancies, and maintain proper records. 7. Non-recourse agreement — If applicable, specifies whether the factor assumes the risk of non-payment by the client's customers or if the client remains liable for any delinquent accounts. 8. Confidentiality and non-compete clauses — Protects sensitive business information and ensures that the client does not engage in factoring services with another factor during the agreement's term. 9. Dispute resolution — Outlines a process for resolving any disputes that may arise between the client and the factor, such as arbitration or mediation. 10. Governing law and jurisdiction — Identifies the applicable jurisdiction and legislation that will govern the agreement. Different types of factoring agreement templates may exist, tailored to specific industries or client requirements. Some common variations include: 1. Full recourse factoring agreement — Unlike non-recourse factoring, the client remains responsible for any customer payment defaults. 2. Notification factoring agreement — The client continues to handle their own accounts receivable management and customer payment collections, while the factor advances funds based on notifications of verified invoices. 3. Invoice discounting agreement — Similar to factoring, but the client retains the responsibility of collecting invoice payments from their customers. 4. International factoring agreement — Designed for companies engaged in cross-border trade, addressing factors such as currency conversion, credit insurance, and compliance with international regulations. By utilizing a factoring agreement template, companies can establish clear expectations and protect their interests when engaging in factoring services, ensuring a smooth and efficient financial relationship with the chosen factoring company.
