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 Virginia Factoring Agreement refers to a financial arrangement between a business owner in Virginia and a factoring company. Factoring is a popular alternative financing option for businesses, where they sell their accounts receivable (unpaid invoices) to a third-party factoring company at a discount in exchange for immediate cash flow. In such agreements, the factoring company essentially purchases the accounts receivable from the business owner and takes over the responsibility of collecting the payments from the customers. This allows the business owner to access quick funds, which can be crucial for meeting various financial obligations such as covering operational costs, paying employees, purchasing inventory, or expanding the business. The factoring agreement outlines the terms and conditions agreed upon between the business owner and the factoring company. These terms typically include the discount rate, which is the amount deducted from the face value of the invoices, and the factoring fee or commission charged by the factoring company for their services. The agreement also specifies the length of the agreement, any minimum volume or duration requirements, and the rights and responsibilities of both parties. In Virginia, there may be different types of factoring agreements available to businesses, including recourse factoring and non-recourse factoring: 1. Recourse Factoring: In this type of factoring agreement, the business owner remains ultimately responsible for any unpaid invoices or customer defaults. If the factoring company is unable to collect the payments, they may seek reimbursement from the business owner. Recourse factoring usually has lower discount rates since the business owner bears the risk of non-payment. 2. Non-Recourse Factoring: In contrast, non-recourse factoring offers the business owner some protection against customer defaults. If the factoring company is unable to collect payment due to customer insolvency or other specified reasons, the loss is absorbed by the factoring company, and the business owner is not liable. Non-recourse factoring typically has higher discount rates compared to recourse factoring. These different types of factoring agreements cater to the unique needs and risk appetite of businesses in Virginia. It is essential for business owners to carefully review the terms and conditions of the factoring agreement, seek legal advice if necessary, and choose an agreement that aligns with their financial requirements and goals.
