Do you have questions about factoring agreements or are you ready to get started? Many factoring agreements have a minimum monthly requirement. Make sure you know what your amount is in case you have one, as you could be penalized if you don`t abide by the terms of the contract. This is a very important part of the factoring agreement as this is why invoice factoring is a financing option. As you may know, invoice factoring approval is not based on your balance, but on the creditworthiness of your customers. For the postman to work with you, they will check your customer`s balance. So, part of the factoring agreement is that you agree to the factoring company performing credit checks of your customers. Since the factoring company you work with is responsible for collecting payment from your customers, you need to understand how they do it. Specifically, this factoring agreement is a financial contract that defines the costs and terms of debtor factoring for your business, such as . B what fees are charged and how much they cost. Since this contract is your money, you want to understand it before you commit to a factoring agreement. A factoring agreement is entered into between a company and a factoring company when they begin the invoice factoring process. This is the point in the relationship where the company assures the postman that it will sell its invoice to get a certain percentage in advance. Let`s say you have an initial term of one year, but you don`t want to work with that factor after that period.
One month (30 days) before the expiry of this period, you must inform the factoring company that you are not renewing the contract. First, your company will likely receive a letter of offer (this is not a contract) from the postman that includes some, but not all, of the terms and conditions that may be included in the factoring agreement. This letter of offer usually requires your signature and a deposit. The postman will then send you the proposed factoring documents, including the factoring agreement, personal guarantees (if the factor makes advances), a secretarial or management certificate (depending on whether your company is a company or a limited liability company), a notice offered to your customers that your company`s receivables have been assigned to the factor, and various related documents and agreements. Be sure to specifically look for additional fees and ask the factoring company why they are part of the deal. Factoring provides a business with a convenient way to insure and collect its debtor loans and obtain financing to manage its business. Be sure to carefully review all the provisions of the factoring agreement, first on your own and then with experienced apparel consultants. A company and a factor enter into an agreement in which the factor acquires a company`s receivables (these purchased accounts are called factored accounts), collects on the factorized accounts, and then pays the company the purchase price of the accounts. If the postman approves an order from a solvent customer of the Company and the Customer subsequently does not pay the Factored Account solely due to the Customer`s financial insolvency (i.e. due to insolvency or bankruptcy) and not due to litigation or any other reason, the Factor will always pay the purchase price of the Account to the Company.
While this shouldn`t be a problem for you, you want to have all your ducks online before you sign a factoring contract. Each factoring agreement covers certain terms and conditions, and depending on the factoring company you work with, these may vary slightly. However, most agreements usually include the following: A factoring contract is not the most exciting document to read, but it is important to read and understand every detail. And no, skimming doesn`t count. The factoring agreement is usually 10 pages or more and can seem overwhelming at first. Below are 10 terms included in all factoring agreements that you need to review and understand: Your apparel business is doing well and instead of continuing to use your own financial resources or taking out loans from family and friends, look for third-party financing. You are now ready to start discussions with various financial institutions about factoring your company`s receivables. Racey Cohn has been providing transaction structuring and other business advice to major financial institutions for over 20 years. . . .