Factoring has historically been used to provide financing to companies in the textile and furniture industries. It remains an important source of financing today for businesses in these and other industries, including government contractors, service providers, manufacturing and importing. Factoring is the purchase of accounts receivable and related assets by a factor from its client, for the purpose of providing working capital and/or transferring the credit risk associated with a factored account from the client to the factor.
Factoring transactions are often highly nuanced and require consideration of a number of issues, including the extent to which a factor will have recourse to its client if an account receivable is not paid in a timely manner. Other concerns that must be taken into account include receivable servicing, notification to account debtors, international transactions, credit insurance, and intercreditor relationships with other factors and lenders to the factor’s client. In some cases, factoring facilities may be secured by all of the factoring client’s other assets in addition to the factored receivables.
The lawyers of Troutman Sanders’ Finance practice routinely represent national and regional banks and commercial finance companies in a wide range of complex factoring transactions, including factoring of government receivables. We assist our clients in performing due diligence, structuring the transaction, and preparing and negotiating documentation and assignment of the receivables.