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 North Dakota Factoring Agreement refers to a legally binding contract established between a company in North Dakota (the client) and a third-party financial institution (the factor) to sell its accounts receivable at a discounted rate in exchange for an immediate cash advance. This financial arrangement helps businesses maintain a steady cash flow and avoid the wait time associated with the collection of outstanding invoices. A Factoring Agreement allows the client to transfer the rights to their accounts receivable to the factor, who then assumes the responsibility of collecting payment from the client's customers. In return, the client receives a percentage of the invoice value upfront, usually ranging from 70% to 90%, depending on factors like industry, creditworthiness, and the credit history of the client's customers. The remaining amount, known as the reserve, is paid to the client once the factor receives full payment from the customers, deducting their fees and any other agreed-upon expenses. This financial solution is especially beneficial for businesses facing cash flow difficulties or those operating in industries with long payment cycles. It allows them to access immediate funds to cover payroll, purchase inventory, invest in growth opportunities, or meet other ongoing operational expenses. Factors also provide credit checks on the client's customers, offering valuable insights into whether they are creditworthy, which helps businesses make informed decisions about extending credit terms. Different types of North Dakota Factoring Agreements may include recourse and non-recourse factoring. Recourse factoring places the responsibility of any unpaid invoices back onto the client if their customer fails to make the payment. In contrast, with non-recourse factoring, the factor assumes the risk of non-payment, protecting the client from potential losses due to customer defaults or insolvencies. Other variations of factoring agreements include spot factoring, where the client selectively factors certain invoices, and whole turnover factoring, which involves selling all accounts receivable to the factor. Invoice discounting, another form of factoring, allows businesses to retain control over their collections process while using their invoices as collateral to secure a loan from the factor. In summary, a North Dakota Factoring Agreement is a financial contract enabling businesses in North Dakota to sell their accounts receivable to a third-party factor at a discounted rate, providing immediate cash flow and relieving the burden of collection. The different types of factoring agreements include recourse, non-recourse, spot factoring, whole turnover factoring, and invoice discounting.
