Factoring Agreement
About this form
A factoring agreement is a legal document in which a company (the seller) sells its accounts receivable (A/R) to a third party (the factor) at a discount. The factor takes ownership of the receivables and is responsible for collecting them, providing immediate cash flow to the seller. This differs from a standard broker agreement, as the factor actually takes possession of the receivables rather than merely facilitating their sale. This form can serve companies dealing with significant outstanding receivables who need to secure funds quickly.
Main sections of this form
- Assignment of accounts receivable: Details the transfer of ownership of A/R from the seller to the factor.
- Sales and delivery provisions: Outlines how sales will be recorded and communicated to customers.
- Credit approval process: Describes the factor's rights to approve or deny sales based on customer creditworthiness.
- Assumption of credit risk: Specifies how credit risks are managed and the responsibilities of each party.
- Terms of payment and fees: Clarifies how payments will be made to the seller and any fees involved.
- Termination clauses: Provides conditions under which either party may terminate the agreement.
When this form is needed
This form is useful in situations where a company needs immediate cash for operational expenses but has a backlog of accounts receivable that are not yet collectible. It is particularly beneficial for manufacturers or service providers facing cash flow shortages due to slow-paying clients. Instead of waiting for the A/R to be paid, selling them to a factor can provide liquidity and stabilize financial operations.
Who should use this form
This form is ideal for:
- Manufacturers or businesses with large accounts receivable looking for liquidity.
- Business owners seeking to manage cash flow effectively and reduce the risk of bad debts.
- Companies engaging in credit sales who require immediate funds to sustain operations.
- Financial entities interested in purchasing receivables to generate income through collections.
How to complete this form
- Identify the parties: Fill in the names and addresses of both the factor and the seller.
- Specify the date: Enter the date on which the agreement is being made.
- Detail the assignment of receivables: Clearly describe the accounts that are being assigned.
- Outline terms and fees: Include specific percentages for the factor's commission and payment terms.
- Provide signatures: Ensure both parties sign the agreement to make it legally binding.
Does this form need to be notarized?
This form usually doesn’t need to be notarized. However, local laws or specific transactions may require it. Our online notarization service, powered by Notarize, lets you complete it remotely through a secure video session, available 24/7.
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Make edits, fill in missing information, and update formatting in US Legal Forms—just like you would in MS Word.
Download a copy, print it, send it by email, or mail it via USPS—whatever works best for your next step.
Sign and collect signatures with our SignNow integration. Send to multiple recipients, set reminders, and more. Go Premium to unlock E-Sign.
If this form requires notarization, complete it online through a secure video call—no need to meet a notary in person or wait for an appointment.
We protect your documents and personal data by following strict security and privacy standards.
Common mistakes to avoid
- Failing to accurately list all accounts receivable being sold.
- Omitting important terms such as payment timelines and fees.
- Neglecting to obtain necessary credit approvals before sales.
- Not properly notifying clients of the change in ownership of receivables.
Advantages of online completion
- Convenient access to a legally drafted agreement that can be customized quickly.
- Easy download and storage options, ensuring important documents are always accessible.
- Editable fields allow for personalization to various business needs.
- Robust legal framework provided by licensed attorneys minimizes potential issues.
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FAQ
Factor, in mathematics, a number or algebraic expression that divides another number or expression evenlyi.e., with no remainder.For example, 3 and 6 are factors of 12 because 12 ÷ 3 = 4 exactly and 12 A· 6 = 2 exactly. The other factors of 12 are 1, 2, 4, and 12.
The factoring company pays you the bulk of the invoiced amount immediately, typically up to 80-90% of the value, after verifying that the invoices are valid. Your customers pay the factoring company directly.The factoring company pays you the remaining invoice amount minus their fee once they've been paid in full.
What Is a Factoring Agreement? A company and a factor enter into an agreement in which the factor purchases a company's accounts receivable (such purchased accounts are called factored accounts), collects on the factored accounts, then pays the company the purchase price of the accounts.
Finance for the supplier, including loans and advance payments. maintenance sales ledger. collection of receivables. protection against default in payment by debtors.
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs.
Mastering the terms used. Factoring Terminologies. Knowing the payment habits of your customer. The success of Invoice factoring for small businesses is largely based on the business credit score. The rates, the fees, and the charges. Knowing the needs of your business.
There are two types of factoring, recourse, and non-recourse, and while they may seem similar, there is one major difference between the two.
It is very costly. In factoring there are three parties: The seller, the debtor and the factor. It helps to generate an immediate inflow of cash. Here the full liability of debtor has been assumed by the factor. Factor has the right to take any legal action required to recover the debts.
