Factoring Agreement

FACTORING AGREEMENT

(Accounts Receivable Purchase Agreement)

Effective Date: [__/__/____]

Agreement Number: [________________________________]

RECITALS

WHEREAS, the Client/Seller (as identified below) is engaged in the business of [________________________________] and generates accounts receivable in the ordinary course of such business;

WHEREAS, the Factor (as identified below) is engaged in the business of purchasing accounts receivable;

WHEREAS, the Client/Seller desires to sell, assign, and transfer certain accounts receivable to the Factor, and the Factor is willing to purchase such accounts receivable, on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I — PARTIES AND DEFINITIONS

Section 1.1 — Parties

Factor (Purchaser):

Client/Seller (Assignor):

Section 1.2 — Definitions

(a) "Account" means any right to payment for goods sold, leased, licensed, assigned, or otherwise disposed of, or for services rendered or to be rendered, which is not evidenced by chattel paper or an instrument, as defined in UCC § 9-102(a)(2).

(b) "Account Debtor" means any person obligated on an Account, as defined in UCC § 9-102(a)(3).

(c) "Advance" means the initial payment made by Factor to Client/Seller upon purchase of an Eligible Account, calculated as the Advance Rate multiplied by the face amount of the Eligible Account.

(d) "Advance Rate" means [____]% of the face amount of each Eligible Account.

(e) "Aging Period" means the number of days an Account has been outstanding from its invoice date.

(f) "Approved Account Debtor" means an Account Debtor that has been reviewed and approved by Factor in accordance with Article IV.

(g) "Chargebacks" means Accounts that are charged back to Client/Seller pursuant to Article IX.

(h) "Collection Account" means the deposit account designated by Factor for the collection of payments on Purchased Accounts: Account Number [________________________________] at [________________________________].

(i) "Credit Limit" means the maximum aggregate face amount of Accounts of any single Account Debtor that Factor will purchase, as established in the Credit Approval.

(j) "Discount Fee" means the factoring fee described in Section 3.2.

(k) "Eligible Account" means an Account that meets all of the criteria set forth in Article III, Section 3.5.

(l) "Facility Limit" means $[________________________________], representing the maximum aggregate outstanding Advances at any time.

(m) "Lockbox" means the post office box or electronic payment address designated by Factor for the receipt of payments from Account Debtors: [________________________________].

(n) "Maximum Aging" means [____] days from the invoice date, after which an Account is no longer an Eligible Account.

(o) "Notice of Assignment" means the written notice to Account Debtors informing them of the assignment of their Accounts to Factor.

(p) "Purchased Account" means an Eligible Account that has been purchased by Factor pursuant to this Agreement.

(q) "Purchase Price" means the full face amount of a Purchased Account, subject to the Discount Fee and other adjustments.

(r) "Rebate" means the amount payable to Client/Seller upon collection of a Purchased Account, after deduction of the Advance, Discount Fee, and other amounts owed.

(s) "Reserve Account" means the account maintained by Factor representing the difference between the face amount of Purchased Accounts and the Advance, less any Discount Fees and other charges.

(t) "Term" means the duration of this Agreement as set forth in Article XII.

ARTICLE II — SALE AND PURCHASE OF ACCOUNTS

Section 2.1 — Sale and Assignment

(a) Client/Seller agrees to sell, assign, and transfer to Factor, and Factor agrees to purchase from Client/Seller, Eligible Accounts in accordance with the terms of this Agreement.

(b) Each sale of an Account shall constitute a "true sale" and absolute transfer of ownership from Client/Seller to Factor, and not a loan or financing arrangement secured by the Accounts. The parties intend that the transfer of each Purchased Account shall be treated as a sale and purchase for all purposes, including for purposes of the UCC and the federal Bankruptcy Code.

(c) Notwithstanding the foregoing, to the extent any transfer of an Account is characterized as a secured transaction rather than a true sale, Client/Seller hereby grants Factor a first-priority security interest in all Accounts and all Collateral described in Article X to secure all obligations of Client/Seller to Factor.

Section 2.2 — Purchase Procedures

(a) Client/Seller shall submit Accounts to Factor for purchase by delivering a Schedule of Accounts (in the form of Exhibit A) together with copies of the underlying invoices, purchase orders, delivery receipts, and other documentation as Factor may require.

(b) Factor shall review each Account and, subject to the credit approval process in Article IV, shall accept or reject each Account within [____] business days of receipt of the Schedule of Accounts and supporting documentation.

(c) Upon acceptance of an Eligible Account, Factor shall fund the Advance by:

☐ Wire transfer to Client/Seller's designated account: [________________________________]
☐ ACH transfer to Client/Seller's designated account: [________________________________]
☐ Check payable to Client/Seller

(d) Funding shall occur within [____] business days of acceptance.

Section 2.3 — Type of Factoring

This Agreement provides for the following type of factoring (select one):

☐ Recourse Factoring. If any Purchased Account remains unpaid after [____] days from the invoice date (the "Recourse Period"), or if any Purchased Account becomes ineligible or is subject to dispute, Client/Seller shall repurchase such Account from Factor at the full face amount, plus any accrued Discount Fees, within [____] business days of Factor's demand. Factor may charge back the Account to the Reserve Account or offset against future Advances.

☐ Non-Recourse Factoring. Factor assumes credit risk for approved Purchased Accounts, subject to the following conditions: (a) the non-recourse protection applies only to Account Debtor insolvency (inability to pay), not to disputes, defenses, offsets, returns, or breaches of Client/Seller's representations; (b) the Account Debtor must be an Approved Account Debtor within its approved Credit Limit; and (c) non-recourse protection does not apply to dilution, warranty claims, or chargebacks arising from Client/Seller's performance.

☐ Modified Recourse Factoring. Factor assumes credit risk for Approved Account Debtors up to their Credit Limits, but Client/Seller bears recourse for (a) Accounts exceeding the Credit Limit, (b) disputed Accounts, (c) Accounts of non-approved Account Debtors, and (d) Accounts that become ineligible due to a breach of Client/Seller's representations.

ARTICLE III — PRICING, FEES, AND RESERVES

Section 3.1 — Advance Rate

Factor shall advance to Client/Seller [____]% (the "Advance Rate") of the face amount of each Eligible Account upon purchase. The balance of the Purchase Price shall be held in the Reserve Account.

Typical advance rates by industry:

Section 3.2 — Discount Fee (Factoring Fee)

The Discount Fee shall be calculated as follows (select one):

☐ Flat Rate. [____]% of the face amount of each Purchased Account, charged upon purchase.

☐ Tiered Rate Based on Aging.

☐ Per Diem Rate. [____]% per day of the face amount of each Purchased Account, calculated from the date of purchase to the date of collection.

☐ Monthly Rate. [____]% per month (or portion thereof) of the outstanding Advance amount, charged [____] (in advance / in arrears).

Section 3.3 — Additional Fees

The following additional fees shall apply:

Section 3.4 — Reserve Account

(a) Factor shall maintain a Reserve Account equal to the difference between the face amount of all outstanding Purchased Accounts and the aggregate Advances (less collected Discount Fees and other charges).

(b) Upon collection of a Purchased Account in full, Factor shall release the Reserve applicable to such Account, less all Discount Fees, charges, and amounts owed by Client/Seller (the "Rebate"), within [____] business days.

(c) Factor may deduct from the Reserve Account any amounts owed by Client/Seller, including Chargebacks, Discount Fees, fees, expenses, and indemnification obligations.

(d) If the Reserve Account balance is insufficient to cover amounts owed by Client/Seller, Client/Seller shall pay the deficiency within [____] business days of demand.

Section 3.5 — Eligible Account Criteria

An Account must meet all of the following criteria to be an Eligible Account:

☐ (a) The Account arose from the actual and bona fide sale of goods that have been shipped and accepted or services that have been performed and accepted by the Account Debtor;

☐ (b) The Account is not past due beyond [____] days from the invoice date;

☐ (c) The Account Debtor is an Approved Account Debtor within its Credit Limit;

☐ (d) The Account is not subject to any dispute, offset, defense, counterclaim, deduction, return, allowance, or claim;

☐ (e) The Account Debtor is not insolvent, bankrupt, or the subject of any insolvency proceeding;

☐ (f) The Account is denominated and payable in United States dollars;

☐ (g) The Account is not owed by an Affiliate, insider, or related party of Client/Seller;

☐ (h) The Account is not a progress billing, retainage, bill-and-hold, consignment, guaranteed sale, or sale-or-return invoice;

☐ (i) The Account is not subject to any prior assignment, lien, or security interest (other than Factor's);

☐ (j) The total outstanding Accounts owed by such Account Debtor do not exceed [____]% of the total outstanding Purchased Accounts (concentration limit);

☐ (k) The Account complies with all applicable laws, including any anti-assignment provisions that have been effectively overridden under UCC § 9-406;

☐ (l) The Account is evidenced by an invoice in the form approved by Factor; and

☐ (m) Client/Seller has provided all supporting documentation requested by Factor.

ARTICLE IV — CREDIT APPROVAL PROCESS

Section 4.1 — Account Debtor Approval

(a) Prior to purchasing any Account, Factor shall conduct a credit review of the applicable Account Debtor.

(b) Client/Seller shall provide Factor with the following information for each Account Debtor:

• Legal name and address
• Contact information
• Taxpayer identification number
• Trade references
• Payment history with Client/Seller
• Credit reports or financial statements (if available)

(c) Factor shall approve or decline each Account Debtor within [____] business days of receiving the required information.

Section 4.2 — Credit Limits

(a) Factor shall establish a Credit Limit for each Approved Account Debtor, which may be increased, decreased, or revoked by Factor at any time in its sole discretion upon [____] business days' notice to Client/Seller.

(b) Factor shall not be obligated to purchase Accounts from any Account Debtor in excess of its Credit Limit.

(c) Current Credit Limits are set forth in Schedule 1 (to be updated from time to time).

Section 4.3 — Ongoing Monitoring

Factor reserves the right to conduct periodic credit reviews of Approved Account Debtors and to modify or revoke Credit Limits based on changes in the Account Debtor's creditworthiness.

ARTICLE V — ACCOUNT DEBTOR NOTIFICATION AND COLLECTIONS

Section 5.1 — Notice of Assignment

(a) Factor shall provide written Notice of Assignment to each Account Debtor on Purchased Accounts, directing the Account Debtor to remit all payments directly to the Factor's designated Collection Account or Lockbox.

(b) The form of Notice of Assignment is attached as Exhibit B.

(c) Client/Seller shall cooperate with Factor in the delivery of Notices of Assignment and shall not interfere with or countermand such notices.

Section 5.2 — Verification of Accounts

Factor may, at any time, verify any Account directly with the Account Debtor by:

(a) Written verification letter;
(b) Telephone or email confirmation;
(c) Site inspection; or
(d) Other commercially reasonable means.

Client/Seller consents to such verification and shall cooperate fully.

Section 5.3 — Collection Procedures

(a) Factor shall have the exclusive right to collect all Purchased Accounts. Client/Seller shall not collect, compromise, settle, or adjust any Purchased Account without Factor's prior written consent.

(b) If Client/Seller receives any payment on a Purchased Account, Client/Seller shall hold such payment in trust for Factor and immediately remit such payment to Factor in the form received.

(c) Factor may employ collection agents, attorneys, or other third parties to collect Purchased Accounts, and Client/Seller shall cooperate with such collection efforts.

(d) Factor shall apply all collections first to the oldest outstanding Purchased Accounts (FIFO method), unless otherwise directed.

Section 5.4 — Misdirected Payments

(a) If any Account Debtor remits payment directly to Client/Seller rather than to the Factor's Collection Account or Lockbox, Client/Seller shall notify Factor within [____] business day(s) and immediately forward such payment to Factor.

(b) Client/Seller's failure to remit misdirected payments constitutes a material breach and potential conversion of Factor's funds.

(c) A Misdirected Payment Fee of $[________________________________] shall apply for each occurrence.

Section 5.5 — Payment Direction Under UCC

The Factor's right to notify Account Debtors and direct payment is supported by UCC § 9-406, which provides that an Account Debtor may discharge its obligation by paying the assignee (Factor) after receipt of notification. Anti-assignment clauses in contracts between Client/Seller and Account Debtors are generally ineffective to prevent the assignment of Accounts under UCC § 9-406(d).

ARTICLE VI — REPRESENTATIONS AND WARRANTIES OF CLIENT/SELLER

Section 6.1 — General Representations

Client/Seller represents and warrants as of the Effective Date and as of each date on which Accounts are submitted for purchase:

(a) Authority. Client/Seller has full power and authority to execute this Agreement, to sell and assign the Accounts, and to perform all obligations hereunder.

(b) Enforceability. This Agreement constitutes a legal, valid, and binding obligation of Client/Seller.

(c) No Conflicts. The execution and performance hereof do not violate Client/Seller's organizational documents, any applicable law, or any material agreement.

(d) Organizational Information. The information set forth in Section 1.1 regarding Client/Seller's legal name, entity type, and state of organization is true and correct.

Section 6.2 — Account-Level Representations

With respect to each Account submitted for purchase, Client/Seller represents and warrants:

(a) Bona Fide Obligation. Each Account represents a bona fide obligation of the Account Debtor for goods actually shipped or services actually rendered, that are accepted without dispute.

(b) Ownership. Client/Seller is the sole legal and beneficial owner of each Account, free and clear of all liens, security interests, and encumbrances (other than Factor's).

(c) No Prior Assignment. No Account has been previously sold, assigned, factored, or pledged to any other party.

(d) No Defense or Dispute. No Account is subject to any defense, set-off, counterclaim, deduction, allowance, return, or dispute by the Account Debtor.

(e) Accurate Invoices. Each invoice accurately reflects the goods sold or services rendered, the amounts owed, and the terms of payment.

(f) Compliance. The goods or services giving rise to each Account comply with all applicable laws, regulations, and contractual requirements.

(g) Account Debtor Solvency. To Client/Seller's knowledge, no Account Debtor is insolvent or the subject of any bankruptcy or insolvency proceeding.

(h) No Contra Accounts. Client/Seller does not owe any amount to any Account Debtor that could give rise to a set-off or counterclaim (or has disclosed all such amounts to Factor).

ARTICLE VII — COVENANTS OF CLIENT/SELLER

Section 7.1 — Affirmative Covenants

Client/Seller covenants and agrees:

☐ (a) Exclusive Factoring. Client/Seller shall offer to Factor all Accounts generated in its business during the Term (exclusive factoring arrangement). OR:
☐ (a) Non-Exclusive Factoring. Client/Seller may factor Accounts with other parties, provided that no other party holds a prior lien or security interest on any Account offered to Factor.

☐ (b) Invoicing. Client/Seller shall promptly issue invoices to Account Debtors upon shipment of goods or performance of services and shall submit such invoices to Factor within [____] business days.

☐ (c) Records. Client/Seller shall maintain complete and accurate books and records regarding all Accounts and shall provide Factor access to such records upon request.

☐ (d) Notices. Client/Seller shall promptly notify Factor of any dispute, defense, claim, or return relating to any Purchased Account, any change in Client/Seller's name, address, or organizational structure, and any material adverse change in Client/Seller's business or financial condition.

☐ (e) Cooperation. Client/Seller shall cooperate with Factor in the verification, collection, and enforcement of Purchased Accounts.

☐ (f) Insurance. Client/Seller shall maintain commercial general liability, property, and other insurance as Factor may reasonably require.

☐ (g) Financial Reporting. Client/Seller shall provide Factor with financial statements and reports as specified in Section 7.3.

Section 7.2 — Negative Covenants

Client/Seller covenants and agrees that, during the Term, without Factor's prior written consent:

(a) Client/Seller shall not sell, assign, pledge, or encumber any Account (whether or not purchased by Factor) to any party other than Factor;

(b) Client/Seller shall not change its legal name, entity type, state of organization, or organizational identification number;

(c) Client/Seller shall not collect, compromise, settle, or adjust any Purchased Account;

(d) Client/Seller shall not grant any discount, allowance, credit, or extension of time for payment on any Purchased Account;

(e) Client/Seller shall not change the terms of any Account Debtor contract in a manner that would adversely affect the collectability of any Purchased Account; and

(f) Client/Seller shall not commingle payments received on Purchased Accounts with its own funds.

Section 7.3 — Financial Reporting Requirements

Client/Seller shall deliver to Factor:

ARTICLE VIII — RECONCILIATION AND AUDIT RIGHTS

Section 8.1 — Reconciliation

(a) Factor shall provide Client/Seller with a monthly statement showing all Purchased Accounts, collections, Discount Fees, charges, Chargebacks, Reserve Account balances, and Rebates.

(b) Client/Seller shall review each statement and notify Factor of any discrepancy within [____] business days. If no notice is given within such period, the statement shall be deemed correct and binding.

Section 8.2 — Audit Rights

(a) Factor may, at any time (and no less than [____] times per year), conduct an audit of Client/Seller's books, records, and operations relating to the Accounts.

(b) Audits may be conducted by Factor's employees or by a third-party auditor designated by Factor.

(c) Client/Seller shall cooperate fully with all audits and shall provide access to all relevant records, personnel, and facilities.

(d) Audit expenses shall be borne by:

☐ Factor (routine audits) / Client/Seller (triggered audits following breach or discrepancy)
☐ Client/Seller (all audits)
☐ Shared equally

(e) If an audit reveals a material discrepancy or breach, Client/Seller shall reimburse Factor for all audit costs plus a fee of $[________________________________].

ARTICLE IX — DISPUTES AND CHARGEBACKS

Section 9.1 — Dispute Notification

Client/Seller shall notify Factor in writing within [____] business days of becoming aware of any dispute, defense, claim, return, or allowance relating to any Purchased Account.

Section 9.2 — Dispute Resolution

(a) Client/Seller shall use commercially reasonable efforts to resolve disputes with Account Debtors promptly and shall keep Factor informed of the status and resolution of all disputes.

(b) Factor may, in its sole discretion, participate in dispute resolution efforts or require Client/Seller to take specific actions.

Section 9.3 — Chargebacks

Factor may charge back to Client/Seller (by debiting the Reserve Account or offsetting against future Advances) any Purchased Account that:

(a) Becomes subject to a dispute, defense, set-off, counterclaim, return, or allowance;

(b) Remains unpaid beyond the Maximum Aging or Recourse Period;

(c) Was based on a breach of Client/Seller's representations or warranties;

(d) Involves an Account Debtor that becomes insolvent or bankrupt (in recourse factoring);

(e) Was based on goods that were returned, rejected, or found to be defective; or

(f) Was fraudulently created or submitted by Client/Seller.

Section 9.4 — Effect of Chargeback

Upon chargeback, ownership of the Account reverts to Client/Seller, and Client/Seller shall reimburse Factor for the Advance and all accrued Discount Fees and charges within [____] business days.

ARTICLE X — SECURITY INTEREST

Section 10.1 — Grant of Security Interest

To secure all obligations of Client/Seller to Factor under this Agreement (whether arising from recourse, indemnification, chargeback, breach, or otherwise), Client/Seller hereby grants Factor a continuing first-priority security interest in:

(a) All Accounts (whether or not purchased by Factor);
(b) All inventory;
(c) All chattel paper;
(d) All instruments;
(e) All deposit accounts (including the Collection Account);
(f) All general intangibles (including payment intangibles);
(g) All books and records relating to the foregoing; and
(h) All proceeds and products of the foregoing (collectively, the "Collateral").

Section 10.2 — UCC Filings

(a) Client/Seller hereby authorizes Factor to file one or more UCC Financing Statements (UCC-1) and amendments (UCC-3) in all jurisdictions that Factor deems necessary or desirable to perfect the security interest, without the signature of Client/Seller.

(b) Client/Seller shall cooperate with Factor in all perfection efforts, including executing control agreements for deposit accounts and electronic chattel paper.

(c) Factor shall file the initial UCC-1 in:

Section 10.3 — True Sale vs. Secured Transaction

The parties intend that each transfer of an Account constitute a true sale. However, to the extent any court or regulatory authority recharacterizes any such transfer as a secured transaction, the security interest granted in this Article X shall secure all obligations of Client/Seller to Factor, and Factor shall be deemed a perfected secured party with all rights and remedies of a secured party under UCC Article 9.

ARTICLE XI — DEFAULT AND REMEDIES

Section 11.1 — Events of Default

Each of the following shall constitute an Event of Default:

(a) Client/Seller fails to pay any amount due to Factor when due (subject to [____] days' cure after written notice);

(b) Any representation or warranty of Client/Seller proves false or misleading in any material respect;

(c) Client/Seller breaches any covenant and such breach (if curable) is not cured within [____] days after notice;

(d) Client/Seller commences or becomes subject to any bankruptcy, insolvency, or similar proceeding;

(e) A judgment in excess of $[________________________________] is entered against Client/Seller and not vacated within thirty (30) days;

(f) A material adverse change occurs in Client/Seller's financial condition, business, or operations;

(g) Client/Seller engages in fraud, misrepresentation, or conversion with respect to any Account or funds;

(h) Any lien (other than Factor's) attaches to the Collateral;

(i) Client/Seller fails to remit misdirected payments within the required timeframe; or

(j) Any cross-default occurs under another agreement between Client/Seller and Factor.

Section 11.2 — Remedies

Upon an Event of Default, Factor may:

(a) Declare all obligations immediately due and payable;

(b) Cease purchasing Accounts and making Advances;

(c) Charge back all outstanding Purchased Accounts to Client/Seller;

(d) Exercise all rights and remedies of a secured party under UCC Article 9, Part 6;

(e) Collect directly from Account Debtors and apply proceeds to Client/Seller's obligations;

(f) Set off any amounts in the Reserve Account or any other account of Client/Seller held by Factor;

(g) Notify all Account Debtors of the assignment and direct all payments to Factor;

(h) Take possession of Client/Seller's books, records, and correspondence relating to Accounts;

(i) Seek injunctive relief, specific performance, or appointment of a receiver; and

(j) Pursue any other remedy available at law or in equity.

Section 11.3 — Fraud and Conversion

If Client/Seller submits fraudulent invoices, fictitious Accounts, or intentionally diverts payments on Purchased Accounts, such conduct may constitute criminal fraud and conversion in addition to a breach of this Agreement. Factor may report such conduct to law enforcement authorities.

ARTICLE XII — TERM AND TERMINATION

Section 12.1 — Initial Term

This Agreement shall have an initial term of [____] months/years commencing on the Effective Date (the "Initial Term").

Section 12.2 — Renewal

☐ Automatic Renewal. This Agreement shall automatically renew for successive periods of [____] months/years unless either party provides written notice of non-renewal at least [____] days prior to the expiration of the then-current term.

☐ No Automatic Renewal. This Agreement shall terminate at the end of the Initial Term unless the parties mutually agree in writing to renew.

Section 12.3 — Early Termination

(a) By Factor. Factor may terminate this Agreement at any time upon the occurrence of an Event of Default or upon [____] days' written notice without cause.

(b) By Client/Seller. Client/Seller may terminate this Agreement upon [____] days' written notice, subject to payment of the Early Termination Fee (if applicable) and all outstanding obligations.

Section 12.4 — Early Termination Fee

If Client/Seller terminates this Agreement prior to the expiration of the Initial Term (other than for Factor's material breach), Client/Seller shall pay an Early Termination Fee equal to:

☐ $[________________________________] (flat fee)
☐ [____]% of the Facility Limit
☐ The Monthly Minimum Fee multiplied by the number of months remaining in the Initial Term
☐ Other: [________________________________]

Section 12.5 — Effect of Termination

Upon termination:

(a) Factor shall have no further obligation to purchase Accounts;

(b) All outstanding obligations of Client/Seller shall become immediately due and payable;

(c) Factor shall continue to collect on all outstanding Purchased Accounts;

(d) Client/Seller shall continue to cooperate with Factor in the collection of Purchased Accounts;

(e) Upon full payment of all obligations, Factor shall release the Reserve Account balance (less amounts owed) and file UCC-3 termination statements; and

(f) The provisions relating to indemnification, confidentiality, and dispute resolution shall survive termination.

Section 12.6 — Buyback Upon Termination

Client/Seller may, at its option, purchase all outstanding Purchased Accounts from Factor by paying Factor the aggregate face amount of all outstanding Purchased Accounts, plus all accrued and unpaid Discount Fees, charges, and other amounts owed, within [____] days of termination.

ARTICLE XIII — STATE-SPECIFIC REGULATORY REQUIREMENTS

Section 13.1 — California

If Client/Seller is located in California or if the transaction is principally directed from California:

(a) California Finance Lenders Law (CFLL). Factor must hold a CFLL license (Cal. Fin. Code § 22000 et seq.) or qualify for an exemption to engage in factoring transactions in California.

(b) California Commercial Financing Disclosure Law (CCFDL / SB 1235). For commercial financing transactions of $500,000 or less to recipients whose business is principally directed or managed from California, Factor must provide disclosures including: total amount of funds provided, total dollar cost, term or estimated term, method and frequency of payments, and a description of prepayment policies. (Cal. Fin. Code § 22800 et seq., effective December 9, 2022.)

(c) APR Disclosure. California requires an annualized rate disclosure under the CCFDL for covered transactions.

(d) The California Department of Financial Protection and Innovation (DFPI) has regulatory authority over factoring companies operating in California.

Section 13.2 — New York

If Client/Seller is located in New York:

(a) New York Commercial Financing Disclosure Law. For covered commercial financing of $2,500,000 or less, Factor must provide disclosures including: financing amount, finance charge, annual percentage rate, total repayment amount, payment amounts, frequency, and term. (N.Y. Fin. Serv. Law Art. 8, effective August 1, 2023.)

(b) The New York Department of Financial Services (DFS) has regulatory authority.

(c) Confession of judgment provisions are limited under CPLR § 3218 (confessions by non-New York residents executed after August 30, 2019 are unenforceable).

Section 13.3 — Florida

If Client/Seller is located in Florida:

(a) Florida Commercial Financing Disclosure Law. For commercial financing transactions exceeding $500 but not exceeding $500,000, providers that consummate more than five commercial financing transactions in Florida in any calendar year must provide written disclosures. (Fla. Stat. § 559.9601 et seq., mandatory for transactions on or after January 1, 2024.)

(b) Factoring companies are not exempt from Florida's disclosure requirements.

(c) Required disclosures include: total amount of financing, finance charge, annual percentage rate, total repayment amount, and payment amounts.

Section 13.4 — Texas

If Client/Seller is located in Texas:

(a) Texas enacted House Bill 700 regarding commercial sales-based financing disclosure requirements (signed May 28, 2025). Factor should confirm applicability to factoring transactions.

(b) UCC filings in Texas must be submitted electronically through SOSDirect.

(c) Texas follows the standard UCC Article 9 framework under Tex. Bus. & Com. Code Chapter 9.

Section 13.5 — General Compliance

Factor represents that it holds all licenses, permits, and registrations required by applicable federal and state law to engage in the business of purchasing accounts receivable in the jurisdictions where it operates. Client/Seller has the right to request evidence of Factor's licensing status.

ARTICLE XIV — GENERAL PROVISIONS

Section 14.1 — Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of [________________________________], without regard to its conflict-of-laws principles.

Section 14.2 — Jurisdiction and Venue

The parties submit to the exclusive jurisdiction and venue of the state and federal courts located in [________________________________] County, State of [________________________________].

Section 14.3 — Jury Waiver

☐ JURY WAIVER INCLUDED. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

☐ Jury waiver not included.

Section 14.4 — Indemnification

Client/Seller shall indemnify, defend, and hold harmless Factor and its officers, directors, employees, and agents from and against any and all claims, damages, losses, liabilities, and expenses (including reasonable attorneys' fees) arising out of or relating to (a) any breach of Client/Seller's representations, warranties, or covenants, (b) any dispute between Client/Seller and any Account Debtor, (c) any product liability or service deficiency claim relating to goods or services underlying any Account, or (d) Client/Seller's business operations.

Section 14.5 — Notices

All notices shall be in writing and deemed given when (a) delivered personally, (b) sent by certified or registered mail, (c) sent by overnight courier, or (d) sent by email with confirmation, addressed to the parties at the addresses in Section 1.1.

Section 14.6 — Amendments

No amendment or modification shall be effective unless in writing and signed by both parties.

Section 14.7 — Severability

If any provision is held invalid, the remaining provisions shall continue in full force.

Section 14.8 — Entire Agreement

This Agreement, together with all Exhibits and Schedules, constitutes the entire agreement of the parties regarding the factoring arrangement.

Section 14.9 — Counterparts

This Agreement may be executed in counterparts. Electronic signatures shall be deemed originals.

Section 14.10 — Confidentiality

Each party shall maintain the confidentiality of the other's proprietary business information, subject to disclosures required by law, regulation, or court order.

Section 14.11 — Power of Attorney

Client/Seller hereby irrevocably appoints Factor as its attorney-in-fact, with full power of substitution, to (a) endorse Client/Seller's name on checks, drafts, and other instruments payable to Client/Seller relating to Purchased Accounts, (b) execute and file UCC financing statements, (c) execute notices of assignment, and (d) take any action necessary to collect Purchased Accounts. This power of attorney is coupled with an interest and is irrevocable.

ARTICLE XV — SIGNATURES

IN WITNESS WHEREOF, the parties have executed this Factoring Agreement as of the date first written above.

Factor:

Client/Seller:

EXHIBIT A — SCHEDULE OF ACCOUNTS (SAMPLE)

EXHIBIT B — NOTICE OF ASSIGNMENT (SAMPLE)

[FACTOR LETTERHEAD]

Date: [__/__/____]

To: [Account Debtor Name and Address]

Re: Notice of Assignment of Accounts

Dear Sir/Madam:

Please be advised that [Client/Seller Name] has sold, assigned, and transferred to [Factor Name] all right, title, and interest in and to the accounts receivable due from you, including those described on the attached schedule.

Effective immediately, all payments on the assigned accounts must be remitted directly to:

[Factor Name]
[Collection Account / Lockbox Address]
Account Number: [________________________________]

Any payments made to [Client/Seller Name] after receipt of this notice will not constitute a discharge of your obligation. Only payments made directly to [Factor Name] at the above address will be credited to your account.

Please direct any questions regarding this assignment to [Factor Contact Person] at [Telephone] or [Email].

Thank you for your prompt attention to this matter.

Sincerely,

[Factor Name]
By: _______________________________
Name: [________________________________]
Title: [________________________________]

SCHEDULE 1 — APPROVED ACCOUNT DEBTORS AND CREDIT LIMITS

Sources and References

• UCC Article 9 — Sale of Accounts: https://www.law.cornell.edu/ucc/9
• UCC § 9-406 (Discharge of Account Debtor): https://www.law.cornell.edu/ucc/9/9-406
• California Finance Lenders Law (Cal. Fin. Code § 22000 et seq.): https://leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=FIN&division=9.&title=&part=&chapter=&article=
• California Commercial Financing Disclosure Law (SB 1235): https://dfpi.ca.gov/commercial-financing-disclosure-regulations/
• New York Commercial Financing Disclosure Law: https://www.dfs.ny.gov/industry_guidance/commercial_financing
• Florida Commercial Financing Disclosure Law (Fla. Stat. § 559.9601): http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0500-0599/0559/0559.html
• IFA: Navigating Commercial Financing Laws and Factoring: https://magazine.factoring.org/magazine-articles/unveiling-the-disclosure-mandate-navigating-commercial-financing-laws-and-factoring-company-obligations
• State Commercial Financing Disclosure Requirements (Alston & Bird): https://www.alstonconsumerfinance.com/states-impose-commercial-financing-disclosure-requirements/
• 11 U.S.C. § 547 (Preferences): https://www.law.cornell.edu/uscode/text/11/547

This template is provided by ezel.ai for informational purposes only. It does not constitute legal advice. An attorney licensed in the applicable jurisdiction must review and customize this document before use. Factoring transactions are subject to state licensing requirements, commercial financing disclosure laws, and UCC Article 9 provisions that vary significantly by state. Last updated: 2026-02-24.