Assignment of Accounts Receivable can be defined as preparing a promissory note, where accounts receivables are collaterals. If the note is dishonored or not paid then, the assignee collects from the collateral account receivable. All receivable are collateral in general Assignment and new receivables are added or substituted for the collected receivables.
But in the specific assignment, the parties’ signs an agreement, recording who would receive the payment (assignor or assignee). The agreement also specifies whether customers will be notified of the arrangement, collateralization of specific accounts and other financial charges.
Thus, Assignment of Accounts Receivable can be described as financial service or arrangements, where a business transfer titles or sells its account receivable to a factoring company. In such arrangement Factoring Company is principal not an agent.
For established business owners, Factoring is most sought after capital or fund raising source. These business owners sell its receivables to third parties or Factor Company at a discounted price for fund raising or financing. The Factor Company advances finance and services to such business, in exchange of interest and fees against the advanced receivable invoices. By following such process, the small business in need of cash can easily raise fund against their receivables. Even, SBA publication indicated, "A factor company can be a useful source of funds if you are already in business and have made sales to customers,”
Factor Company can provide financing in two ways including:
Factor Company is best source of finance to established company but not for the newly set up units, as such entities do not have a base of customer or accounts receivable to offer to the factor company.
It is also to be noted that, Factoring can be carried out in two ways either by notification basis where, the receivable account customers directly remits to the Factor Company, or non-notification basis, in which case the business owner collects the payments of the receivable and remits to the factor.
If you are also planning to raise financing for your business, you can enter into Assignment of Account Receivable (Non-Recourse and Recourse) with Factor Company by using below given templates
ASSIGNMENT OF ACCOUNTS RECEIVABLE
FOR VALUE RECEIVED, the undersigned hereby sells and transfers all right, title and interest in and to the account[s] receivable as annexed; to _________
The undersigned warrants that the said account[s] are just and due and the undersigned has not received payment for same or any part; provided, however, that said account[s] are sold without recourse to the undersigned in the event of non-payment.
Signed under seal this___ day of ____, 20XX_______________________________
ASSIGNMENT OF ACCOUNTS RECEIVABLE
FOR VALUE RECEIVED, the undersigned hereby sells and transfers all right, title and interest in and to the account[s] receivable as annexed; to _________________, the undersigned warrants that said account[s] are just and due and the undersigned has not received payment for same or any part thereof.It is further provided that if any said account does not make full payment within ______ days, said account[s] may be to the undersigned and the undersigned shall repurchase same for the balance then owing on said account[s].
Signed under seal this _____ day of ____, 20xx____________________________________