General Form of Factoring Agreement -- Assignment of Accounts Receivable
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General Form of Factoring Agreement -- Assignment of Accounts Receivable Powered By Docstoc
					     General Form of Factoring Agreement -- Assignment of Accounts Receivable

Agreement made on the (date), between (Name of Factor), a corporation organized and
existing under the laws of the state of (name of state), with its principal office located at
(street address, city, state, zip code), referred to herein as Factor, and (Name of Seller),
a corporation organized and existing under the laws of the state of (name of state), with
its principal office located at (street address, city, state, zip code), referred to herein as

      Whereas, Client is engaged in the general business of (type of business), and
normally sells and delivers merchandise to customers on a credit basis; and

      Whereas, Client desires to obtain funds and commercial credit for operation of its
business against its accounts receivable; and

       Whereas, Factor is willing to purchase Client's accounts receivable according to
the terms set forth in this Agreement;

       Now, therefore, for and in consideration of the mutual covenants contained in this
Agreement, and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:

1.      Assignment of Accounts Receivable. Client hereby assigns to Factor as
absolute owner, and Factor purchases and accepts from Client without recourse to
Client, except as set forth in this Agreement, all accounts receivable created now or in
the future by Client's credit sales to customers; such accounts receivable are
acceptable to Factor and represented by Client to be bona fide existing obligations of its
customers arising out of and acquired by it in the ordinary course of its business; and
such accounts receivable are or will be due and owing to Client without defense, offset,
or counterclaim. For purposes of this Agreement, accounts receivable include all
accounts, notes, trade acceptances, bills of exchange, pledges, mortgages, choses in
action, or any other form of obligation.

2.      Sales and Delivery of Merchandise
        A.     All sales and delivery of merchandise by Client will be made in its name
        with notification to customers that the accounts receivable thus created have
        been assigned, sold, and transferred to Factor in absolute ownership.

        B.     Invoices and statements to customers are to be sent out by Client in a
        manner and on forms approved by Factor. Factor has the right and privilege to
        send such invoices or statements to customers, if it so chooses, with cost of
        stationery and postage charged to the account of Client. All invoices are to be
        clearly marked in a manner specified by Factor, giving full notification to the
        customer that the account is payable to Factor at its office at the address set
        forth above.
     C.     Factor has the right to institute and maintain actions in its name or
     otherwise to collect such accounts. Those actions based upon Client Risk
     accounts shall be at the cost of Client. Client Risk Account shall mean any
     account with amounts or invoices which, taken together with those amounts or
     invoices already existing, exceeds the limit of credit established by Factor with
     respect to that customer.

3.   Credit Approval
     A.     Sales and deliveries are to be made only with the written approval of
     Factor's Credit Department.

     B.      If, in the sole opinion of Factor, a customer's credit becomes impaired
     before the actual delivery of merchandise to the customer, Factor shall have the
     right to withdraw approval of any order taken from such customer.

     C.      Factor shall also be entitled to exercise a seller's right of stoppage in
     transit, replevin, or reclamation. Any merchandise so recovered shall be dealt
     with, as between Factor and Client, as returned merchandise.

     D.     Client further sells and assigns to Factor all merchandise, represented by
     receivables purchased by Factor that may be returned by customers. Client
     further assigns and transfers to Factor all its title or interest in the merchandise
     represented by such receivables and all its rights of stoppage in transit, replevin,
     and reclamation. Any merchandise so recovered shall be treated as returned

     E.    Factor shall not be liable to any person or in any manner for refusing to
     approve the delivery of merchandise sold, as set forth in this Agreement.

4.   Assumption of Credit Risks
     A.      On all accounts receivable accepted and purchased by Factor, except
     those receivables termed Client Risk Accounts, Factor will assume any losses
     resulting from insolvency of the customer. Such assumption of credit risk shall go
     into effect upon delivery and acceptance without dispute of the value and quality
     of the merchandise.

     B.     Client agrees that it shall adhere strictly to the credit limits established by

     C.    Factor, at its option, may advance money against accounts or invoices
     exceeding the established credit limit with full recourse against Client.

     D.     If an unadjusted claim or dispute delays for more than (number) days the
     payment of an account when due, Factor's assumption of the credit risk is
     cancelled, and the amount may be charged back to Client as of the date of the
     original credit.
      E.      Client will report to Factor all rejections and returns of merchandise and
      customer's claims immediately upon learning of those matters, and will promptly
      adjust all claims and disputes with customers. Should any returned merchandise
      come into the possession of Client, it will be turned over to Factor unless the
      amount credited to Client by reason of the sale of such merchandise is repaid or
      otherwise secured to Factor in a satisfactory manner. Factor shall have the right
      to sell the returned merchandise at private sale, and if the amount received from
      such sale is less than the amount advanced on invoice represented by the
      merchandise, then Client shall be charged with such deficiency and Factor shall
      have full recourse against Client for such deficiency.

5.    Purchase Price
      A.     Client will provide Factor with an assignment of receivables, satisfactory to
      Factor, together with the original or true copies of invoices or statements, as may
      be specified by Factor, conclusive evidence of shipment, or other instruments or
      papers that Factor may require. The purchase price is to be the net amount of
      the receivables accepted by Factor, calculated on the most favorable terms given
      to each customer, less Factor's commission equal to ____% of the net amount of
      all such receivables. Net amount of receivables means the gross amount of such
      receivables less any discount or allowances of any nature.

      B.      Factor shall pay Client, or credit Client with the purchase price of such
      receivables, less any moneys remitted, paid, or otherwise advanced by Factor for
      the account of Client or reserves, at the average due date of such receivables,
      which average due date is to include (number) days for collection. Interest on any
      moneys remitted, paid, or otherwise advanced by Factor before the average due
      date is to be charged at the rate of ____% per annum on the unpaid balance and
      is to be payable at the close of each month. Such interest rate may be increased
      or decreased as the parties may agree from time to time.

      C.     Factor will remit to Client on request, and shall have the privilege of
      remitting at any time, the proceeds of sales as they are made, or any amount
      standing to Client's credit. However, to protect Factor against possible returns,
      claims, allowances, expense, or other items properly chargeable to Client's
      account under and pursuant to this Agreement, Factor may reserve an amount
      equal to ____% of the net amount of receivables, which amount is considered
      reasonably necessary to cover such contingencies. Such reserve account shall
      never be less than ____% of the outstanding receivables. Within (number) days
      following the close of each month, Factor will make an accounting to Client
      regarding the reserve account and, on all receivables that have been completely
      collected, will remit to Client the reserves held on such receivables, less
      deductions by customers, and any unpaid compensation, charges, o
Description: 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.
PARTNER William Glover
I received my B.B.A. from the University of Mississippi in 1973 and my J.D. from the University of Mississippi School of Law in 1976. I joined the firm of Wells Marble & Hurst in May 1976 as an Associate and became a Partner in 1979. While at Wells, I supervised all major real estate commercial loan transactions as well as major employment law cases. My practice also involved estate administration and general commercial law. I joined the faculty of Belhaven College, in Jackson, MS, in 1996 as Assistant Professor of Business Administration and College Attorney. While at Belhaven I taught Business Law and Business Ethics in the BBA and MBA programs; Judicial Process and Constitutional Law History for Political Science Department); and Sports Law for the Department of Sports Administration. I am now on the staff of US Legal Forms, Inc., and drafts forms, legal digests, and legal summaries. I am a LTC and was Staff Judge Advocate for the Mississippi State Guard from 2004-2008. I now serve as the Commanding Officer of the 220th MP BN at Camp McCain near Grenada, MS. I served on active duty during Hurricanes Dennis (July, 2005), Katrina (August, 2005) and Gustav in 2008. I played football at the University of Mississippi in 1969-1971 under Coach John Vaught. I am the author of the Sports Law Book (For Coaches and Administrators) and the Sports Law Handbook for Coaches and Administrators (with Legal Forms),