Debt Factoring Agreement - England and Wales

Debt Factoring Agreement for the United Kingdom

Debt Factoring Agreement Template for England and Wales

A Debt Factoring Agreement under English and Welsh law is a commercial contract where a business (the Client) sells its accounts receivable to a financial institution (the Factor) at a discount. This agreement governs the terms of purchase, collection, and administration of the receivables, including fees, warranties, and operational procedures. It enables businesses to improve cash flow by receiving immediate payment for invoices while outsourcing credit control and collections.

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What is a Debt Factoring Agreement?

The Debt Factoring Agreement is essential for businesses seeking to improve working capital management through the sale of receivables. Commonly used in England and Wales, it provides a comprehensive framework for the assignment of debts, setting out the rights and obligations of both the Factor and Client. The agreement covers crucial aspects including purchase price calculations, collection procedures, warranties, and risk allocation. It's particularly valuable for businesses with significant B2B invoice volumes seeking reliable cash flow management while reducing administrative burden.

What sections should be included in a Debt Factoring Agreement?

1. Parties: Identification of the factor and the client

2. Background: Context of the agreement and business relationship

3. Definitions: Key terms used throughout the agreement including regulatory references to FSMA, Money Laundering Regulations, etc.

4. Assignment of Receivables: Core provisions regarding the transfer of debts and compliance with assignment law principles

5. Purchase Price and Payment Terms: Financial terms including factoring fees, discount rates and payment mechanisms

6. Client Warranties: Representations regarding the receivables, business operations and compliance with applicable laws

7. Collection and Administration: Process for collecting assigned debts and administrative procedures

8. Data Protection and Confidentiality: Compliance with UK GDPR and Data Protection Act 2018 requirements

9. Termination: Circumstances and process for ending the agreement, including consequences of termination

10. Governing Law and Jurisdiction: Specification of English and Welsh law as governing law and jurisdiction for disputes

What sections are optional to include in a Debt Factoring Agreement?

1. Recourse Provisions: Used in recourse factoring arrangements where the client retains credit risk

2. Cross-Border Provisions: Additional terms for international receivables and compliance with international regulations

3. Credit Insurance: Terms relating to credit insurance arrangements and requirements

4. Consumer Credit Provisions: Additional provisions required when dealing with consumer debts under Consumer Credit Act

What schedules should be included in a Debt Factoring Agreement?

1. Schedule 1 - Eligible Receivables Criteria: Detailed criteria for acceptable receivables and compliance requirements

2. Schedule 2 - Fee Structure: Detailed breakdown of all fees, charges and calculation methodologies

3. Schedule 3 - Operating Procedures: Day-to-day procedures for assignment, collection and reporting

4. Schedule 4 - Form of Notice of Assignment: Template notice to be sent to debtors informing them of the assignment

5. Schedule 5 - Reporting Requirements: Required reports, their frequency and content specifications

6. Schedule 6 - AML and KYC Requirements: Specific requirements for anti-money laundering and know-your-customer compliance

Authors

Alex Denne

Head of Growth (Open Source Law) @ ��Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

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Free to use

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Financial Services and Markets Act 2000: Primary legislation governing financial services regulation in the UK, including factoring activities that may constitute regulated activities

Consumer Credit Act 1974: Regulates consumer credit arrangements and may apply if the factoring agreement involves consumer debts

Late Payment of Commercial Debts (Interest) Act 1998: Governs the right to claim interest on late commercial payments, relevant for debt collection aspects

Insolvency Act 1986: Relevant for understanding rights and obligations in case of debtor insolvency

Companies Act 2006: Provides framework for corporate entities and their operations, including requirements for company charges and registration

FCA Regulations: Financial Conduct Authority regulations governing regulated financial activities including certain types of factoring

Money Laundering Regulations 2017: Anti-money laundering requirements that may apply to factoring transactions

UK Sanctions Regulations: Regulations regarding restricted parties and transactions that must be considered in factoring arrangements

Law of Property Act 1925: Fundamental legislation governing property rights and assignments

Contracts (Rights of Third Parties) Act 1999: Governs third party rights in contractual arrangements, relevant for factoring relationships

Supply of Goods and Services Act 1982: Relevant for understanding the underlying contracts giving rise to the receivables

UK GDPR: Data protection requirements for handling personal data in factoring arrangements

Data Protection Act 2018: UK's implementation of data protection requirements, complementing UK GDPR

Rome I Regulation: Determines applicable law in contracts with international elements

UN Convention on Assignment of Receivables: International framework for receivables assignments in international trade

Common Law Assignment Principles: Legal principles developed through case law regarding assignment of rights and obligations

Notice Requirements: Common law principles regarding requirements for effective notice of assignment

Equitable Assignment Principles: Principles developed in equity regarding assignments and their enforcement

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What is a Debt Factoring Agreement?

What sections should be included in a Debt Factoring Agreement?

What sections are optional to include in a Debt Factoring Agreement?

What schedules should be included in a Debt Factoring Agreement?

Authors

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