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 District of Columbia Factoring Agreement refers to a legal contract between a business or individual, known as the "factor," and another business or individual, known as the "client" or "seller." This agreement involves the sale of accounts receivable, which are the unpaid invoices or debts owed to the client by its customers. The factor, in exchange for a fee or a discount, purchases these accounts receivable from the client, assuming the responsibility of collecting the debts from the clients' customers. This agreement allows the client to convert its accounts receivable into immediate cash, providing a reliable source of funding for its operations. It is particularly beneficial for businesses facing cash flow issues or those seeking working capital for growth and expansion. In the District of Columbia, there are various types of Factoring Agreements available: 1. Recourse Factoring: This is the most common type of factoring agreement, where the client remains liable for any unpaid debts that the factor is unable to collect. In this arrangement, if the client's customer defaults on its payment, the factor can demand reimbursement from the client. 2. Non-Recourse Factoring: In this type of factoring agreement, the factor assumes the risk of non-payment by the client's customers. If a customer fails to pay, the factor absorbs the loss, relieving the client of any financial liability. Non-recourse factoring generally comes at a higher cost as the factor takes on more risk. 3. Notification Factoring: This type of factoring agreement involves the factor directly notifying the client's customers about the assignment of their debts. The factor typically handles all collections and interactions with the customers on behalf of the client. This arrangement helps maintain customer relationships as it avoids any confusion regarding payment instructions. 4. Maturity Factoring: Maturity factoring focuses on the specific timing of payment. With this agreement, the factor purchases accounts receivable with extended payment terms, often up to 90 or 120 days. This type of factoring is suitable for businesses dealing with long payment cycles but in need of immediate funds. 5. Invoice Factoring: Invoice factoring is a widely used type of factoring agreement. It involves the factor purchasing individual invoices or a batch of invoices at a discounted rate before they are due for payment. The factor then assumes responsibility for collecting the debts from the customers. This type of factoring provides quick access to cash without waiting for the payment term to expire. District of Columbia Factoring Agreements are governed by specific laws and regulations, and it is advisable to consult legal counsel while drafting or entering into such agreements. These agreements can provide businesses with a valuable financial tool to optimize their cash flow, enhance liquidity, and fuel growth.
