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 Kentucky Factoring Agreement refers to a financial arrangement between a business, known as the "seller," and a factoring company, called the "factor," based in the state of Kentucky. Factoring is a form of financing in which a company sells its accounts receivable to a third party at a discount in exchange for immediate cash. The primary aim of a Kentucky Factoring Agreement is to provide the seller with working capital to meet its immediate financial needs. By selling its invoices or accounts receivable to the factor, the seller can access funds that would otherwise be tied up in unpaid invoices for an extended period. This working capital can be utilized to cover day-to-day operational expenses, expand the business, invest in new equipment, or take advantage of growth opportunities. Kentucky Factoring Agreements function by the factor advancing a percentage of the face value of the invoices to the seller upfront, typically around 80-90%. The factor then collects the payment from the debtor and deducts its fee, known as the "factor fee" or "discount rate," before remitting the remaining balance to the seller. This discount rate usually ranges from 1-5% based on factors such as the creditworthiness of the debtor, the volume of invoices, and the duration of payment terms. There are several types of Kentucky Factoring Agreements available to businesses based on their specific requirements. These may include: 1. Recourse Factoring: In this type of agreement, the seller is responsible for repurchasing any invoices that go unpaid by the debtor. The risk of non-payment remains with the seller. 2. Non-Recourse Factoring: Under this arrangement, the factor assumes the risk of non-payment by the debtor. If an invoice remains unpaid within a specified period, the factor absorbs the loss. 3. Full-Service Factoring: This type of agreement provides additional services such as credit checking, collections management, and accounts receivable administration. The factor takes care of all aspects related to the management and collection of invoices. 4. Spot Factoring: Sometimes known as single invoice factoring, spot factoring allows the seller to select individual invoices to be factored, providing flexibility in managing their cash flow. Kentucky Factoring Agreements offer several advantages to businesses, including improved cash flow, reduced administrative burden, enhanced credit control, and the ability to negotiate discounts for early payments with suppliers. By accessing immediate cash through factoring, businesses in Kentucky can ensure steady operations and seize growth opportunities without being hindered by delayed payments from customers.
