What are the terms and conditions of factoring contract?
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1. Sale and Purchase of Receivables. The factoring agreement will require you to sell all of your accounts receivable to the factor. Discuss with the factor any accounts that you do not plan to sell to the factor, such as credit card or COD accounts or accounts arising from your sales to specific customers.
2. Credit Approvals and Withdrawals and Disputes. Prior to shipping goods to a customer, you will be submitting the customer’s order to the factor for its approval of the creditworthiness of the customer and the terms of sale. An account receivable arising from the sale to a customer pursuant to an approved order or under a credit line is an approved or factor risk account. Accounts that are not approved or factor risk accounts are referred to as nonapproved or client risk accounts. You will not be able to change any of the terms of sale on an approved account without the factor’s prior written consent, and, in general, you must ship the goods in accordance with the factor’s written approval. The factor can change or withdraw a credit approval at any time before the goods are delivered to the customer, and, in such cases, the account receivable arising from the sale of the goods becomes a nonapproved account. In addition, if a customer alleges a dispute with respect to a factored account, the factor no longer has the credit risk on the account and the account becomes a nonapproved account. Be sure to discuss with the factor how much time your company has to work out disputes with customers before the account becomes a nonapproved account.
3. Invoicing and Assignment Schedules. Your company will be required to put a notice on its invoices to its customers that the invoices have been sold to and are payable only to the factor at a specified lockbox, and you will be required to turn over to the factor any payments your company receives on factored accounts. You will also be required to send the factor schedules of all assigned accounts and the related invoices and proofs of shipment or delivery.
4. Commissions. The factor will charge your company a percentage of the gross amount of the factored invoice as a commission, subject to a minimum, specified dollar-per-invoice amount. The factor will also charge an additional commission or surcharge on certain customer accounts based on the financial information the factor maintains on the customer. In addition, in almost all cases, your company will be charged a monthly, quarterly, semiannual, or annual minimum commission amount.
5. Advances. The factoring agreement will provide for discretionary advances by the factor up to a specified percentage of the purchase price of approved factored accounts (and, in some cases, the factor may also make advances against the purchase price of nonapproved accounts). There will also be a dollar limit on the amount of advances that may be outstanding at any time. Make sure to discuss this limit with the factor since it may not be stated in the factoring agreement.
Hope it helps..✌️✌️
1. Sale and Purchase of Receivables. The factoring agreement will require you to sell all of your accounts receivable to the factor. Discuss with the factor any accounts that you do not plan to sell to the factor, such as credit card or COD accounts or accounts arising from your sales to specific customers.
2. Credit Approvals and Withdrawals and Disputes. Prior to shipping goods to a customer, you will be submitting the customer’s order to the factor for its approval of the creditworthiness of the customer and the terms of sale. An account receivable arising from the sale to a customer pursuant to an approved order or under a credit line is an approved or factor risk account. Accounts that are not approved or factor risk accounts are referred to as nonapproved or client risk accounts. You will not be able to change any of the terms of sale on an approved account without the factor’s prior written consent, and, in general, you must ship the goods in accordance with the factor’s written approval. The factor can change or withdraw a credit approval at any time before the goods are delivered to the customer, and, in such cases, the account receivable arising from the sale of the goods becomes a nonapproved account. In addition, if a customer alleges a dispute with respect to a factored account, the factor no longer has the credit risk on the account and the account becomes a nonapproved account. Be sure to discuss with the factor how much time your company has to work out disputes with customers before the account becomes a nonapproved account.
3. Invoicing and Assignment Schedules. Your company will be required to put a notice on its invoices to its customers that the invoices have been sold to and are payable only to the factor at a specified lockbox, and you will be required to turn over to the factor any payments your company receives on factored accounts. You will also be required to send the factor schedules of all assigned accounts and the related invoices and proofs of shipment or delivery.
4. Commissions. The factor will charge your company a percentage of the gross amount of the factored invoice as a commission, subject to a minimum, specified dollar-per-invoice amount. The factor will also charge an additional commission or surcharge on certain customer accounts based on the financial information the factor maintains on the customer. In addition, in almost all cases, your company will be charged a monthly, quarterly, semiannual, or annual minimum commission amount.
5. Advances. The factoring agreement will provide for discretionary advances by the factor up to a specified percentage of the purchase price of approved factored accounts (and, in some cases, the factor may also make advances against the purchase price of nonapproved accounts). There will also be a dollar limit on the amount of advances that may be outstanding at any time. Make sure to discuss this limit with the factor since it may not be stated in the factoring agreement.
Hope it helps..✌️✌️
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