FACTORING AGREEMENT
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Summary
A factor is an agent who is entrusted with the possession and control of his principal's goods for the purpose of selling them ("Seller"). A Factor may generally sell in his own name as well as in the name of his principal. Note that a sale by a Factor in credit, if transacted in the ordinary course of business, will bind the principal, even though a credit sale may not have been authorized. Governed by Section 2-403 of the UCC. This is designed to supercede the rights of the buyer over the rights of the principal over the factor's creditors.
Consignment
Seller maintains upon consignment in Factor's custody a stock of the products for the purpose of filing orders. Seller ships to Factor, on consignment, specific products in a given quantity. Factor receives the Products and stores them in Factor's warehouse. Factor or Seller, from and after the time it ships or receives such products, may pay all expenses, including all expenses of carting, handling, storage, selling, and delivering to customers, and all taxes and other charges assessed and levied on such products while in its possession.
Purchase of products from factor
Upon the execution of this agreement, Seller agrees to purchase from Factor all of Seller's products then owned by Factor, so that such products become Seller's property and constitute consigned stock of Seller in Factor's possession.
Title to goods.
The consigned products remain Seller's property until sold to Factor's customers and title to the proceeds of the sales of such products shall vest in and belong to Seller until accounted for and remitted to Seller.
Loss or damage
Factor is responsible for reimbursing Seller for all loss and expense to Seller resulting from damage to or destruction of the consigned products while in Factor's possession, and until the title passes from Seller by reason of the sale and the proceeds of sale have been accounted for and remitted to Seller. Seller assumes the risk of loss or damage to such products by fire or other insurable perils, to the extent of Seller's insurance coverage.
Compensation
Factors generally receive as compensation a commission on sales.
Reports
Factor makes a report to Seller listing sales from the consigned products made by Factor. Seller mails an invoice to Factor covering the sales shown in such report.
Records
Factor keeps records of all products in its possession under consignment. The report should include the products in transit as well as the products in Factor's warehouse.
Authority to act for Seller
Factor usually conducts the entire business of selling such products in Factor's name and at Factor's cost and expense.
Guaranty
Factor guarantees that it will sell each month out of the consigned stock a certain amount of product/inventory.
Independent Contractor
Important to distinguish this hire from an employee to avoid any tax liability in the future. The onus of responsibility falls onto the Factor for payment of social security or federal or state income taxes. Factor acknowledges that it is his/her legal responsibility to pay all applicable federal and state income taxes (including estimated taxes), social security, Medicare and all applicable federal and state self-employment taxes.
Severability
In the event any part, portion or provision or paragraph of this Agreement is declared void or invalid, the remaining portions of this Agreement are not affected and remain in full force and effect.
Mediation and Arbitration
Mediation and Arbitration should always specify a location in a convenient jurisdiction (preferably, in the same county where they run their business). Mediation is a non-binding way to settle the dispute quickly and amicably. If unable to settle in mediation, arbitration is first option available. Arbitration is the preferred alternative to litigation because of speed, cost, and ability to maintain low profile (no info is publicly available).
Governing Law
Always stipulate that the contract will be governed under the law and jurisdiction where business is conducted. Always make sure that venue and jurisdiction are convenient.
No Modification or Waiver
No modifications except those specifically agreed upon by the parties in writing. Any waiver of a term or provision will not act as a waiver of any other provision.
Entire Agreement
This agreement constitutes the entire agreement of the parties and may be modified only in a writing executed by both parties.
Notices
Notices should always list the current and best addresses where each party may contact the other for whatever reason.
Restrictive Covenants
Such restrictive covenants offer statutory remedies for violation and often prevent a party from unfairly competing against another or disclosing confidential business information. As always, ensure any such restrictive covenant is within statutory parameters.
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