Note that the factoring company (buyer) may, in the above clause, require you to redeem the invoice (the “account purchased”) on request – even if your customer has become insolvent, refuses to pay or pay late. Note that in the second quote, there is no language on “with recourse.” Even for the purposes of a factoring contract, “buyer” and “buyer” mean the same thing. The word and specific language of each clause depend on the factoring company`s lawyer. In addition, the agreement must clearly state the law under which it is regulated and how the contract is terminated. It is also worth describing how the agreement should be amended. If you want to sell your invoices as a means of raising capital, it is important to understand the differences between recourse and non-recourse transactions. In essence, recourse means that you (or your business) are on the hook if your customers don`t pay the bills you sold to the factoring company, and don`t regressfactoring means you`re not on the hook. Think of non-recourse agreements as “wireless” financing — the factoring company is taking the risk that the bill will not be paid by your customer. Your client`s insolvency, late payment and refusal to pay are exactly the types of risks that the factoring company assumes in a genuine non-recourse agreement. Also keep in mind that in the above clause, factoring companies may not cough up money; Instead, they will “debit” or debit your reserve account. In other words, all the money that the factoring company will keep in reserve, it will take it for itself. In fact, you always have to pay them.
This article is not designed as legal advice. This article is only an informative and hypothetical article with examples of language of appeal compared to a sample of non-recourse agreements. We recommend that before signing an agreement, take this article with a grain of salt, refer to your lawyer, and make sure you understand the language, even after your lawyer has explained it to you. If you need an example of factoring, you can download a factoring model here. Sometimes, but not always, factoring companies will include a “buy-back” clause in a factoring agreement. These clauses govern the purchase of the invoice by your company, the factoring company. Because factoring includes “buying and selling” invoices in which your business sells invoices to the factoring company, the buyback means you will buy them back. This can be done for many reasons, such as the invoice that is outstanding for more than 90 days. But then again, it is important to understand the language. A factoring contract is required when a company wants to raise funds for the operation of its operations. Many small businesses have regular sales or payments that they charge their customers. A factoring company “buys” the rights to the receivables in exchange for the supply of short-term capital to the contractor.
The purpose of a factoring contract is to help the company raise capital by “selling” its receivables to an external capital firm.