Advance Factoring Agreement

Summary

This template is an advance factoring agreement also categorized with discount factoring agreements. In this template, an originating company sells its accounts receivable to a factor before collection of the receivables from the account debtor. This template includes practical guidance, drafting notes, and alternate and optional clauses. Advance or discount factoring agreements are common for retail or wholesale companies that desire to factor accounts receivable in order to receive the value of accounts receivable prior to their collection from the account debtor. In an advance factoring arrangement, the factor provides an advance to the selling company before the accounts receivable are collected. The amount of the advance typically is based on a percentage of value (or discount off the face value) of accounts receivable which the factor agrees to purchase. As the accounts are collected, the amounts received by the factor repay the advance made by the factor. Typically, in this type of factoring agreement, the factor charges interest or finance charges, factoring fees, commissions, or other fees. The terms of factoring agreements vary as to when the sale is effective, which accounts receivable are sold, whether the factor has recourse to the seller for nonpaying accounts receivable, whether account debtors know about the factoring arrangement, as well as other terms. The variations depend on the nature of the seller's business, the need for cash flow and/or collection services, and the price the factor is willing to pay, and the seller is willing to accept, for the accounts receivable. The capitalized terms used in this template should be conformed to the defined terms in other relevant agreements between the parties. This template should be read in conjunction with the practice note Factoring Transactions. For a sample factoring agreement in which the factor purchases the accounts receivable at the time of collection, see Collection Factoring Agreement. For a full listing of key content covering asset-based lending, including agreements, security, guaranties, perfection, and priorities, see Asset-Based Lending Resource Kit.