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, specifically in the context of Massachusetts, is a legal contract between a business, known as the "factor", and another business or company, commonly referred to as the "client" or "seller". This agreement provides a way for the client to sell its accounts receivable or invoices to the factor at a discounted rate, enabling the client to gain immediate cash flow rather than waiting for their customers to pay. Factoring agreements are a common financing tool used by businesses of all sizes and industries to effectively manage their cash flow and working capital needs. It allows the client to convert their accounts receivable into immediate cash, which can be used to cover operational expenses, invest in growth opportunities, pay suppliers, or meet any other financial obligations. In Massachusetts, there are primarily two types of factoring agreements: 1. Recourse Factoring: In this type of factoring agreement, the client remains responsible for any unpaid invoices or accounts receivable. If the client's customers fail to pay the invoices, the factor has the right to demand reimbursement from the client. 2. Non-recourse Factoring: Unlike recourse factoring, non-recourse factoring provides a higher level of protection for the client. In this arrangement, the factor assumes the risk of non-payment by the client's customers. If any invoice goes unpaid due to customer insolvency or default, the factor cannot demand reimbursement from the client. This type of factoring usually comes at a higher cost to the client due to the increased risk taken by the factor. Both types of factoring agreements can be customized based on the specific needs and requirements of the client and the factor. The agreement typically outlines key terms and conditions such as the discount rate applied to the invoices, the payment schedule, the duration of the agreement, any fees or penalties, and the rights and responsibilities of both parties. It is important for both parties to thoroughly understand and review the terms of the Massachusetts factoring agreement before entering into the contract. Seeking legal and financial advice is highly recommended ensuring the agreement is fair, reasonable, and meets the specific needs of the client's business.
