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 South Dakota factoring agreement refers to a financial arrangement where a business sells its accounts receivable (unpaid invoices) to a third-party company, known as a factor, in exchange for immediate access to cash. This arrangement helps businesses manage their cash flow by converting their outstanding invoices into liquid funds. The South Dakota factoring agreement involves a contract between the business (known as the "client") and the factor. The factor evaluates the creditworthiness of the client's customers and determines the amount it is willing to advance against the invoices. Typically, the factor will provide an upfront payment, known as an advance rate, which can range from 70% to 90% of the invoice value. There are different types of factoring agreements available in South Dakota, catering to the specific needs of different businesses. Some common types include: 1. Recourse Factoring: In this type of agreement, the client is responsible for any unpaid invoices. If a customer fails to pay, the client must buy back the invoice from the factor. Recourse factoring typically offers lower advance rates and is commonly used by businesses with strong creditworthy customers. 2. Non-Recourse Factoring: This agreement provides more protection to the client, as the factor assumes the risk of non-payment by customers. If a customer fails to pay due to insolvency or bankruptcy, the factor absorbs the loss. Non-recourse factoring often comes with higher fees and advance rates, making it suitable for businesses with customers of uncertain creditworthiness. 3. Spot Factoring: Spot factoring allows businesses to select specific invoices for immediate cash advance rather than factoring all their invoices. It provides flexibility in managing cash flow by allowing businesses to address immediate financial needs without committing to long-term arrangements. 4. Invoice Discounting: While not strictly a factoring agreement, invoice discounting is a similar financing option. The business retains control over the collection process and continues to handle customer payments. The factor provides an advance against the invoices but does not collect payments directly. South Dakota factoring agreements can benefit various industries, including manufacturing, transportation, staffing, and wholesale trade. By converting invoices into cash, businesses can meet operational expenses, invest in growth opportunities, pay employees, and manage their working capital. Factors typically charge a fee, known as a discount rate, based on the value of the invoices and the agreed-upon terms of the arrangement. Overall, a South Dakota factoring agreement provides businesses with a valuable tool to improve cash flow and maintain stability in their finances. The different types of factoring agreements allow businesses to customize the arrangement based on their unique needs and risk tolerance.
