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Factoring Agreement Template
Define how invoices are sold, funded, collected, and reconciled with this Factoring Agreement Template.
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Factoring Agreement Template
This Factoring Agreement (the “Agreement”) is made and entered into as of [Effective Date] (the “Effective Date”) by and between:
Factor: [Factor Company Name], [Entity Type], with an address at [Factor Address] (“Factor”).
Client/Seller: [Client Company Name], [Entity Type], with an address at [Client Address] (“Client”).
Factor and Client may be referred to individually as a “Party” and together as the “Parties.”
1. Purpose and Structure
1.1 Receivables Sale. Client agrees to sell, and Factor agrees to purchase, certain accounts receivable (the “Receivables”) on the terms of this Agreement.
1.2 Financing vs. Sale (Choose One). The Parties intend this arrangement to be treated as:
☐ A true sale of Receivables
☐ A secured financing arrangement
1.3 Exclusivity (Optional). Client will factor receivables: ☐ Exclusively with Factor ☐ Non-exclusively.
2. Definitions
2.1 Receivable. An invoice or payment obligation owed to Client by a customer (“Account Debtor”) for goods/services delivered.
2.2 Eligible Receivables. Receivables are eligible if they meet criteria in Exhibit A (e.g., undisputed, within aging limits, properly documented).
2.3 Purchased Receivables. Receivables that Factor accepts for purchase under this Agreement.
2.4 Reserve. The portion withheld by Factor to cover fees, adjustments, and chargebacks.
3. Purchase Process
3.1 Submission. Client will submit invoices to Factor with supporting documentation: [POs, proof of delivery, time sheets, etc.].
3.2 Acceptance. Factor may accept or reject any invoice in its sole discretion, unless otherwise stated.
3.3 Purchase Confirmation. Upon acceptance, Factor will provide written confirmation identifying the invoice amount purchased and the advance amount.
4. Advances, Reserves, and Fees
4.1 Advance Rate. Factor will advance [__]% of the face amount of each purchased invoice (the “Advance”).
4.2 Reserve. Factor will hold a reserve of [__]% (or the remainder) until collection and reconciliation.
4.3 Discount/Fee. Factor will charge:
☐ []% per [week/month] outstanding
☐ Tiered fee schedule (see Exhibit B)
☐ Flat fee per invoice of $[]
4.4 Additional Fees (Optional).
☐ Service/admin fee: $[]/month
☐ Wire/ACH fee: $[] per transfer
☐ Due diligence/onboarding fee: $[]
☐ Minimum volume fee: $[]/month
☐ Early termination fee: $[__]
☐ Other: [Fees]
4.5 Fee Deductions. Fees may be deducted from: ☐ Reserve ☐ Advances ☐ Separate invoice to Client.
5. Collections and Notice to Account Debtors
5.1 Collections. Collections will be handled by:
☐ Factor collects directly from Account Debtors
☐ Client collects as Factor’s agent (requires written authorization)
☐ Other: [Method]
5.2 Notice of Assignment. Account Debtors will be notified:
☐ Immediately upon purchase
☐ Upon Factor request
☐ Not notified (confidential factoring) (requires special procedures)
5.3 Payment Instructions. Account Debtors must pay: ☐ Factor lockbox ☐ Factor bank account ☐ Other: [Instructions].
5.4 Misapplied Payments. If Client receives a payment for a purchased receivable, Client must hold it in trust and remit it to Factor within [__] business days.
6. Recourse and Chargebacks
6.1 Recourse (Choose One).
☐ Recourse factoring: Client is responsible for certain non-payment events
☐ Non-recourse factoring: Factor assumes certain credit risks (limited)
6.2 Recourse Triggers. In recourse factoring, Factor may charge back an invoice if:
☐ Not paid within [] days of invoice date
☐ Customer disputes goods/services
☐ Customer claims offset/credit
☐ Invoice was ineligible or misrepresented
☐ Other: [Triggers]
6.3 Remedies. If a chargeback occurs, Client must:
☐ Repurchase the receivable within [] days, or
☐ Replace it with an eligible receivable, or
☐ Allow Factor to debit Client’s account per authorization.
7. Client Representations and Covenants
7.1 Valid Receivables. Client represents each submitted invoice is genuine, valid, and enforceable and relates to goods/services actually delivered.
7.2 No Disputes. Client represents there are no known disputes, offsets, or defenses, unless disclosed in writing.
7.3 Authority. Client has authority to sell/assign the receivables.
7.4 No Prior Assignment. Receivables have not been previously sold, pledged, or assigned.
7.5 Ongoing Duties. Client will promptly notify Factor of: disputes, returns, credits, customer insolvency, or any event affecting collectability.
8. Security Interest and Additional Collateral (Optional)
8.1 Security Interest. To the extent this arrangement is deemed a secured financing, Client grants Factor a security interest in: [Accounts, inventory, proceeds, etc.].
8.2 UCC Filings. Factor may file UCC financing statements to perfect its interest.
8.3 Guarantee (Optional). Personal or corporate guarantee required: ☐ Yes ☐ No. If yes: [Guarantor Name].
9. Reserves, Adjustments, and Reconciliation
9.1 Reconciliation. After an invoice is collected, Factor will reconcile and release reserve minus fees and adjustments within [__] days.
9.2 Credits/Returns. If credits or returns occur, the Parties will adjust the invoice and reserve accordingly.
9.3 Statements. Factor will provide statements: ☐ Weekly ☐ Monthly ☐ Other: [Frequency].
10. Term and Termination
10.1 Term. This Agreement begins on the Effective Date and continues until terminated.
10.2 Termination for Convenience. Either Party may terminate with [] days’ written notice, subject to any minimum term: [Minimum Term].
10.3 Termination for Cause. Either Party may terminate if the other materially breaches and fails to cure within [] days after notice.
10.4 Effect of Termination. Upon termination, Client must:
pay all amounts due,
repurchase or settle chargebacks as applicable, and
cooperate to transition collections and notices.
11. Confidentiality (Optional)
11.1 Confidential Terms. Pricing and deal terms are confidential: ☐ Yes ☐ No.
11.2 Permitted Disclosure. Disclosure is allowed to advisors and as required by law.
12. Limitation of Liability (Optional)
12.1 No Consequential Damages. To the extent permitted by law, neither Party is liable for indirect or consequential damages.
12.2 Liability Cap (Optional). Total liability is capped at: ☐ Fees paid ☐ $[__] ☐ Other: [Cap].
13. Notices
13.1 Notice Method. Notices must be sent by: ☐ Email ☐ Certified mail ☐ Courier ☐ Other: [Method].
13.2 Notice Contacts.
Factor Email: [Email]
Client Email: [Email]
14. Governing Law and Dispute Resolution
14.1 Governing Law. This Agreement is governed by the laws of [State].
14.2 Dispute Resolution. Disputes will be resolved by:
☐ Informal negotiation
☐ Mediation
☐ Arbitration
☐ Court litigation in [County, State]
14.3 Attorneys’ Fees (Optional). Prevailing party attorneys’ fees: ☐ Yes ☐ No ☐ Limited to: [Details].
15. Miscellaneous
15.1 Entire Agreement. This Agreement is the entire agreement regarding factoring and supersedes prior discussions.
15.2 Amendments. Amendments must be in writing and signed by both Parties.
15.3 Assignment. Client may not assign without Factor’s consent; Factor may assign to a successor or funding source: ☐ Yes ☐ No.
15.4 Severability. If any provision is unenforceable, the rest remains effective.
15.5 Counterparts; Electronic Signatures. This Agreement may be signed in counterparts and by electronic signature.
Signatures
By signing below, the Parties agree to be bound by this Factoring Agreement as of the Effective Date.
Factor: [Factor Company Name]
Title/Role: [Title]
Date: [Date]
Signature: ___________________________
Client/Seller: [Client Company Name]
Title/Role: [Title]
Date: [Date]
Signature: ___________________________
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Factoring Agreement Template
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For quick answers, scroll below to see the FAQ.
Click below for detailed info on the template.
For quick answers, scroll below to see the FAQ.
FACTORING AGREEMENT TEMPLATE FAQ
What is a factoring agreement?
A factoring agreement is a contract where a business sells its accounts receivable (invoices) to a factoring company (the “Factor”) in exchange for immediate cash. Instead of waiting for customers to pay, the business receives an advance (often a percentage of the invoice), and the factor collects from the customers and later pays any remaining balance minus fees.
How is invoice factoring different from a loan?
Factoring is typically structured as a sale of receivables rather than borrowing money against them. The factor’s main source of repayment is the customer’s payment on the invoice. However, some arrangements look and feel like financing, so the agreement should clearly state whether receivables are sold outright and what happens if an invoice isn’t paid.
What does “recourse” vs. “non-recourse” mean in factoring?
In recourse factoring, the seller must buy back or replace invoices that aren’t paid for certain reasons (like non-payment after a set time). In non-recourse factoring, the factor takes more of the credit risk, but usually only for specific issues (like customer insolvency) and fees are often higher. The agreement should define these triggers clearly.
What fees are common in factoring agreements?
Common fees include a discount fee (factoring fee) based on time outstanding, service/administration fees, wire/ACH fees, minimum volume fees, and sometimes due diligence or termination fees. The agreement should show exactly how fees are calculated and when they are deducted.
Do customers need to be notified about factoring?
Often yes. Many factoring arrangements require notice to customers and a change in payment instructions so customers pay the factor directly. Some industries use confidential factoring where customers are not notified, but that requires a different structure and controls. This template includes options for notice and payment direction.
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