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 California Factoring Agreement is a legally binding contract between a company (the "seller" or "client") and a factoring company (the "factor" or "buyer"). It involves the selling of accounts receivable or invoices generated by the seller to the factor in exchange for immediate cash advances. Factoring is a financial tool used by businesses to enhance their cash flow. California Factoring Agreement allows businesses to access funds quickly without waiting for customers to pay their invoices. This arrangement can be particularly beneficial for companies experiencing cash flow issues or facing long payment cycles. There are a few different types of California Factoring Agreements, each tailored to suit the specific needs of businesses: 1. Recourse Factoring: In this type of agreement, the seller bears the risk of non-payment by customers. If a customer fails to pay an invoice, the seller must repurchase the debt from the factor or replace it with another eligible invoice. 2. Non-Recourse Factoring: With this type of agreement, the factor assumes the risk of non-payment. If a customer fails to pay an invoice, the factor absorbs the loss without recourse to the seller. This type of factoring generally requires additional due diligence and higher fees. 3. Selective Factoring: This arrangement allows the seller to choose which invoices it wants to sell to the factor. It provides flexibility by allowing businesses to factor only certain customers or invoices, rather than all of them. 4. Invoice Factoring: The most common type of factoring agreement, where the factor buys the entire accounts receivable portfolio of the seller. The factor then assumes the responsibility of collecting payment from customers. 5. Spot Factoring: This type of factoring occurs on a one-time basis. The seller can choose to factor a specific invoice or a small batch of invoices, instead of committing to a long-term agreement. In a California Factoring Agreement, the terms and conditions are outlined, including the purchase price (discount rate) the factor will pay for the invoices, any additional fees, the maximum credit limit, and the duration of the agreement. The factor typically requires the seller to provide regular reports on outstanding invoices and may impose certain requirements or obligations on the seller. It is important for businesses in California to carefully review and understand the terms of a Factoring Agreement before entering into it to ensure they are making an informed decision and maximizing the benefits of the arrangement.
