It may be difficult for a business focusing on the production and sale of goods or services to manage its accounts receivable. Factoring involves the sale of accounts receivable to another business in exchange for operating loans, which can be an effective way for the business to finance its operations and simplify its accounting by avoiding the administrative and financial burden of collecting receivables.

Although uncommon, this type of financing can be very interesting for some businesses. Our template provides the legal framework to govern the relationship between the business and the "factor," who is responsible for managing the receivables it buys.

We recommend using this template when a business wishes to limit its debt burden, improve its financial position reduce its need for funds and working capital and allow the business to grow. The factor must, however, properly assess the risk related to the accounts receivable assigned by the business, as he is only paid a percentage of the value of the payments recovered.

0.00 INTERPRETATION
0.01 Terminology
0.01.01 Activities
0.01.02 Agreement
0.01.03 Approved Customer Account
0.01.04 Associate of MERCHANT
0.01.05 Authorized Limit
0.01.06 Bank Day
0.01.07 Breach
0.01.08 Buyback
0.01.09 Change in Control
0.01.10 Confidential Information
0.01.11 Customer Account
0.01.12 Debtor
0.01.13 Delivery
0.01.14 Encumber or Encumbrance
0.01.15 Event of Default
0.01.16 Force Majeure
0.01.17 Fundamental Provisions
0.01.18 Law
0.01.19 Legal Entity
0.01.20 Legal Representatives
0.01.21 Non-approved Customer Accounts
0.01.22 PARTY
0.01.23 Person
0.01.24 Prime Rate
0.01.25 Purchase Price
0.02 Precedence
0.03 Jurisdiction
0.03.01 Governing Law
0.03.02 Non-compliance
0.04 Miscellaneous
0.04.01 Cumulative Rights
0.04.02 Time and Dates
0.04.03 Financial References
0.04.04 References within Agreement
0.04.05 Gender and Number
0.04.06 Headings
0.04.07 Presumptions
0.04.08 Knowledge
0.04.09 Approval
0.04.10 GAAP
1.00 PURPOSE
1.01 Factoring
1.02 Conditions
1.02.01 Required by MERCHANT
1.02.02 Required by FACTOR
1.02.03 Choice
2.00 CONSIDERATION
2.01 Approved Customer Accounts
2.02 Commission on Sales
3.00 TERMS OF PAYMENT
3.01 Payment
3.01.01 Approved Customer Accounts
3.01.02 Commission on Sales
3.02 Currency
3.03 Non-Payment
3.04 Buyback
3.05 Interest
4.00 SECURITY
4.01 In favour of MERCHANT
4.02 In favour of FACTOR
4.03 Transfer of Property
5.00 MUTUAL REPRESENTATIONS AND WARRANTIES
5.01 Status
5.02 Authority
5.03 Binding Agreement
5.04 Canadian Resident
5.05 Commission
5.06 Insurance
5.07 Nominee
5.08 Fundamental Provisions
5.09 Disclosure
6.00 REPRESENTATIONS AND WARRANTIES OF MERCHANT
6.01 Status
6.02 Authority
6.03 Binding Agreement
6.04 Insurance
6.05 Nominee
6.06 Fundamental Provisions
6.07 Disclosure
6.08 Operating Permit
6.09 Legal Proceedings
6.10 Legality of Customer Accounts
6.11 No Encumbrance
6.12 Debtors
6.13 Event of Default
6.14 Fiscal Position
6.14.01 Default
6.14.02 Payment
6.14.03 Deductions
6.15 Documentation
7.00 REPRESENTATIONS AND WARRANTIES OF FACTOR
7.01 Status
7.02 Authority
7.03 Binding Agreement
7.04 Insurance
7.05 Nominee
7.06 Fundamental Provisions
7.07 Disclosure
7.08 Operating Permit
7.09 Legal Proceedings
7.10 Fiscal Position
7.10.01 Default
7.10.02 Payment
7.10.03 Deductions
7.11 Solvency
8.00 MUTUAL DUTIES AND OBLIGATIONS
8.01 Confidential Information
8.01.01 Undertaking
8.01.02 End of Agreement
8.02 Insurance
8.02.01 Insured Risks
8.02.02 Amount of Coverage
8.02.03 Issuer
8.02.04 Co-insured
8.02.05 No Limitation
8.03 Indemnification
8.03.01 “Loss”
8.03.02 Scope
8.03.03 Procedure
8.03.04 Deductible
8.03.05 Limitation on Claims
8.04 Disclosure of Agreement
9.00 DUTIES AND OBLIGATIONS OF MERCHANT
9.01 No Encumbrance
9.02 Approval of Orders
9.02.01 Undertaking
9.02.02 Acknowledgement
9.03 Invoices and List of Sales
9.04 Relationship with the Debtors
9.04.01 Requirements
9.04.02 Notice to Debtors
9.04.03 Return of Merchandise
9.04.04 Compliance with Contracts
9.04.05 Delivery Notice
9.04.06 Amendments to Contracts
9.04.07 Waiver
9.05 Customer Accounts
9.05.01 Authorized Limit
9.05.02 Collection
9.05.03 Collaboration
9.05.04 Security on Customer Accounts
9.05.05 Prohibition
9.05.06 Modification of Customer Accounts
9.05.07 Conflict regarding Customer Accounts
9.05.08 Buyback of Customer Accounts
9.06 Non-approved Customer Accounts
9.06.01 Management Fees
9.06.02 Legal Proceedings
9.07 Rendering of Account
9.07.01 Maintenance
9.07.02 Communication with the Debtors
9.07.03 Financial Statements
9.07.04 Audit
9.08 Necessary and Useful Contracts
9.09 Authorization
9.10 Waiver of Compensation
9.11 Liability
9.12 Release
10.00 DUTIES AND OBLIGATIONS OF FACTOR
10.01 Publicity
10.02 Approval of Orders
10.02.01 Time Limits
10.02.02 Authorized Limit
10.03 Customer Accounts
10.03.01 Purchase
10.03.02 Non-approved Customer Accounts
10.03.03 Management
10.03.04 Collection
10.03.05 Legal proceedings
10.03.06 Affectation
10.03.07 Monthly account statement
10.03.08 Litigation
10.03.09 Buyback
10.04 Compensation
10.05 Waiver
10.06 Liability
11.00 SPECIAL PROVISIONS
11.01 Assignment
11.01.01 By FACTOR
11.01.02 By MERCHANT
11.02 Force Majeure
11.02.01 No Default
11.02.02 Duty
11.02.03 Rights of Other PARTY
11.03 Relationship
11.03.01 Independent Contractors
11.03.02 No Control over Performance
11.03.03 No Authority to Bind
11.04 Further Assurances
11.05 Other Remedies
11.05.01 Choices
11.05.02 No Limitations
11.06 Prescription
12.00 GENERAL PROVISIONS
12.01 Notice
12.02 Dispute Resolution
12.02.01 Good Faith Negotiations
12.02.02 Mediation
12.02.03 Arbitration
12.03 Election
12.04 Counterparts
12.05 Amendment
12.06 Waiver of Rights
12.07 Electronic Transmission
12.08 Language
13.00 TERMINATION
13.01 Mutual Consent
13.02 Unilateral Termination
13.03 Without Notice
13.04 Prior Notice
13.04.01 Default
13.04.02 Non-compliance with Undertakings
13.05 Change of Control
13.06 Procedure
13.06.01 Payment
13.06.02 Retainer
13.06.03 Return of documents
14.00 EFFECTIVE DATE
14.01 Retroactivity
14.02 Execution
14.03 Deferral
15.00 DURATION
15.01 Probationary
15.02 Initial Term
15.03 Renewal
15.03.01 First Renewal
15.03.02 Subsequent Renewals
15.04 Survival
15.05 Non Renewal
16.00 SCOPE


SCHEDULE A - EXCERPT FROM A RESOLUTION OF MERCHANT
SCHEDULE B - EXCERPT FROM A RESOLUTION OF FACTOR
SCHEDULE 0.01.22 – NON-APPROVED CUSTOMER ACCOUNTS
SCHEDULE 6.11 – ENCUMBRANCE ON CUSTOMER ACCOUNTS
SCHEDULE 9.04.01 – PAYMENT TERMS OF CONTRACTS ENTERED INTO WITH DEBTORS