Factoring Law 101: Key Legal, Regulatory, and Contractual Considerations

This session introduces factoring as the oldest form of commercial finance, explaining how factors purchase trade debt at a discount to provide immediate capital to businesses. Participants will learn the critical distinctions between factoring and traditional lending, including the discretionary nature of factoring agreements, and explore key industries such as transportation, temporary staffing, and construction that commonly utilize factoring arrangements.

This session examines the legal foundation of factoring under UCC Article 9, including key definitions such as account, account debtor, and security interest. Participants will navigate the evolving state and federal regulatory landscape, with particular attention to California’s stringent disclosure requirements and strategies for distinguishing factoring from payday lending to address usury concerns.

This session provides practical guidance on structuring factoring agreements, including the critical choice between recourse and non-recourse arrangements and their implications for risk allocation. Participants will learn essential contractual provisions covering assignments, warranties, dispute resolution, and guarantees, along with due diligence best practices for vetting debtors and account debtors before advancing funds.

This session addresses common factoring disputes including payment interception, account debtor non-payment, and client insolvency scenarios. Participants will explore fraud risks representing the primary threat to factors, learn to utilize UCC Section 9-406 notice of assignment provisions, and examine enforcement tools such as estoppel agreements and voidable transfer statutes for successful collections.