Once you have submitted your factoring application and we have submitted our term sheet proposal if we agree on the terms of the factoring financing then we will prepare the contract. The contract is called a PURCHASE AND SALE AGREEMENT. As it sounds, we are purchasing the invoices from you. And per the agreement those invoices belong to us.
The contract itself has tough language it’s been called “onerous.†But all lending agreements must clearly anticipate anything that can go wrong in the transaction. The contract has to leave no gray areas that will encumber the lender pursuing the return of the money that is outstanding. It has to be strict and inflexible to protects us should there be a problem.
The most important word to consider when reviewing the contract is “default.†None of the harsh activities will ever transpire as long as we are living up to the agreement. The greatest majority of the time we don’t see any defaults and rarely have to invoke the provisions laid out in the agreement.
Until there is a default, it’s all paper in a file cabinet.