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 Texas Factoring Agreement is a type of financial arrangement that allows businesses, particularly small and medium-sized enterprises (SMEs), to improve cash flow by selling their accounts receivable to a third-party entity known as a factor. This agreement is commonly used by businesses that experience cash flow gaps due to slow-paying customers or lengthy payment terms. In this arrangement, the business (known as the client or the seller) sells its outstanding invoices to the factor at a discounted rate, typically around 70-90% of the total invoice value. The factor then assumes the responsibility of collecting payment from the client's customers. Once the customer pays the full invoice amount, the factor deducts its fees and returns the remaining balance to the client, which is known as the reserve amount. The factoring agreement is governed by a contract that outlines the terms and conditions of the arrangement between the client and the factor. It includes information such as the fees charged by the factor, the reserve percentage, the notification process to customers regarding the change in payment collection, and any recourse available in case of non-payment by the customer. There are two main types of factoring agreements commonly used in Texas: 1. Recourse Factoring: In this type of agreement, the client maintains the risk of non-payment by their customers. If a customer fails to pay their invoice, the client must buy it back from the factor or replace it with another eligible invoice. Recourse factoring typically offers lower fees due to the higher risk borne by the client. 2. Non-Recourse Factoring: In a non-recourse factoring agreement, the factor assumes the risk of non-payment by the client's customers. If a customer fails to make payment due to financial insolvency or other agreed-upon reasons, the factor absorbs the loss instead of the client. Non-recourse factoring often involves higher fees due to the additional risk taken on by the factor. Both types of factoring agreements can provide crucial benefits to businesses, such as improved cash flow, increased working capital, and reduced credit risk. They can be particularly beneficial to businesses facing seasonal fluctuations, rapid growth, or those operating in industries with long payment cycles. Before entering into a Texas Factoring Agreement, it is important for businesses to carefully review the contract terms, assess the fees, evaluate the factor's reputation and experience, and understand the impact on customer relationships. Seeking legal and financial advice is recommended to ensure that the agreement aligns with the business's specific needs and objectives.A Texas Factoring Agreement is a type of financial arrangement that allows businesses, particularly small and medium-sized enterprises (SMEs), to improve cash flow by selling their accounts receivable to a third-party entity known as a factor. This agreement is commonly used by businesses that experience cash flow gaps due to slow-paying customers or lengthy payment terms. In this arrangement, the business (known as the client or the seller) sells its outstanding invoices to the factor at a discounted rate, typically around 70-90% of the total invoice value. The factor then assumes the responsibility of collecting payment from the client's customers. Once the customer pays the full invoice amount, the factor deducts its fees and returns the remaining balance to the client, which is known as the reserve amount. The factoring agreement is governed by a contract that outlines the terms and conditions of the arrangement between the client and the factor. It includes information such as the fees charged by the factor, the reserve percentage, the notification process to customers regarding the change in payment collection, and any recourse available in case of non-payment by the customer. There are two main types of factoring agreements commonly used in Texas: 1. Recourse Factoring: In this type of agreement, the client maintains the risk of non-payment by their customers. If a customer fails to pay their invoice, the client must buy it back from the factor or replace it with another eligible invoice. Recourse factoring typically offers lower fees due to the higher risk borne by the client. 2. Non-Recourse Factoring: In a non-recourse factoring agreement, the factor assumes the risk of non-payment by the client's customers. If a customer fails to make payment due to financial insolvency or other agreed-upon reasons, the factor absorbs the loss instead of the client. Non-recourse factoring often involves higher fees due to the additional risk taken on by the factor. Both types of factoring agreements can provide crucial benefits to businesses, such as improved cash flow, increased working capital, and reduced credit risk. They can be particularly beneficial to businesses facing seasonal fluctuations, rapid growth, or those operating in industries with long payment cycles. Before entering into a Texas Factoring Agreement, it is important for businesses to carefully review the contract terms, assess the fees, evaluate the factor's reputation and experience, and understand the impact on customer relationships. Seeking legal and financial advice is recommended to ensure that the agreement aligns with the business's specific needs and objectives.
