The Debt Factoring Agreement is a crucial financial instrument used when businesses seek to improve their working capital position by selling their accounts receivable to a specialized financial institution (factor) at a discount. This document, designed for the Canadian market, establishes the legal framework for this relationship, detailing how receivables are purchased, managed, and collected. It incorporates requirements from Canadian federal and provincial legislation, including the PPSA and Bank Act, with special considerations for Quebec-based transactions under the Civil Code. The agreement is particularly relevant for businesses seeking alternative financing solutions, especially when traditional banking facilities may not fully meet their working capital needs. It includes comprehensive provisions for risk management, operational procedures, and compliance with Canadian regulatory requirements.
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1. Parties: Identification of the Factor and the Client (seller of receivables)
2. Background: Context of the agreement, nature of the Client's business and receivables
3. Definitions: Key terms including Eligible Receivables, Purchase Price, Discount Rate, Reserve Account
4. Purchase and Sale of Receivables: Core terms of receivables purchase, including transfer of rights and true sale provisions
5. Purchase Price and Payment Terms: Calculation of purchase price, advance rate, reserves, and payment mechanics
6. Eligibility Criteria: Criteria for receivables to qualify for purchase
7. Representations and Warranties: Client's representations regarding business, receivables, and authority
8. Covenants: Ongoing obligations of the Client including reporting and operational requirements
9. Collection and Servicing: Terms for collection of receivables, including notification to debtors and account management
10. Events of Default: Circumstances constituting default and consequences
11. Indemnification: Client's obligations to indemnify the Factor
12. Term and Termination: Duration of agreement and termination provisions
13. Confidentiality: Protection of confidential information
14. Governing Law and Jurisdiction: Applicable law and dispute resolution
15. General Provisions: Standard boilerplate including notices, amendments, assignment
1. Recourse Provisions: Used in recourse factoring arrangements where the Client retains credit risk
2. Credit Insurance: Include when credit insurance is required or provided
3. Cross-Border Provisions: Required for international receivables factoring
4. Electronic Trading Platform: Include when using digital platforms for receivables trading
5. Parent Company Guarantee: Used when additional security from a parent company is required
6. VAT/GST Provisions: Specific provisions for handling sales tax aspects of factoring
7. Subordination: Required when there are other creditors requiring inter-creditor arrangements
1. Eligibility Criteria Schedule: Detailed criteria for acceptable receivables
2. Fee Schedule: Detailed breakdown of factoring fees, charges and calculations
3. Form of Notice of Assignment: Template for notifying debtors of the assignment
4. Operational Procedures: Detailed procedures for submission and processing of receivables
5. Required Reports: Templates and formats for required reporting
6. Excluded Debtors: List of debtors whose receivables are excluded from the facility
7. Form of Debtor Credit Limit Application: Template for requesting credit limits on debtors
Authors
Relevant legal definitions
Clauses
Relevant Industries
Manufacturing
Wholesale Trade
Retail
Construction
Transportation and Logistics
Professional Services
Healthcare
Technology
Agriculture
Energy
Telecommunications
Relevant Teams
Finance
Legal
Treasury
Credit Risk
Operations
Compliance
Commercial
Business Development
Accounts Receivable
Risk Management
Relevant Roles
Chief Financial Officer
Finance Director
Treasury Manager
Credit Manager
Accounts Receivable Manager
Financial Controller
Risk Manager
Commercial Director
Legal Counsel
Compliance Officer
Operations Manager
Credit Analyst
Portfolio Manager
Relationship Manager
Business Development Manager
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