Debt Factoring Agreement Template for India

The Debt Factoring Agreement serves as a critical financial instrument in the Indian market, enabling businesses to optimize their working capital by selling their accounts receivable to specialized financial institutions. This agreement type is particularly relevant when companies seek to improve cash flow, reduce collection costs, or transfer credit risk. The document, governed by Indian law and specifically the Factoring Regulation Act, 2011, outlines the entire factoring relationship, including assignment mechanics, pricing structures, operational procedures, and risk allocation. It's commonly used by businesses experiencing growth, dealing with longer payment cycles, or requiring immediate working capital. The agreement incorporates necessary compliance elements with RBI regulations, registration requirements, and applicable stamp duty obligations, making it suitable for both domestic and, where applicable, international factoring arrangements.

1. Parties: Identification of the Factor and the Client (supplier/seller)

2. Background: Context of the agreement, business relationship, and purpose of the factoring arrangement

3. Definitions and Interpretation: Definitions of key terms used in the agreement and rules of interpretation

4. Assignment of Receivables: Core provisions regarding the assignment of receivables, including mechanism and scope

5. Purchase Price and Payment Terms: Calculation of purchase price, discount rate, reserves, and payment mechanisms

6. Eligibility Criteria: Criteria for receivables to qualify for factoring

7. Representations and Warranties: Key representations and warranties by the Client regarding business and receivables

8. Client Undertakings: Ongoing obligations of the Client throughout the agreement term

9. Collection and Payment Procedures: Procedures for collection of receivables and handling of payments

10. Fees and Charges: Detailed breakdown of all fees, charges, and commission structures

11. Events of Default: Circumstances constituting default and consequences thereof

12. Term and Termination: Duration of agreement and termination provisions

13. Indemnification: Indemnity obligations of the parties

14. Confidentiality: Protection of confidential information

15. Governing Law and Jurisdiction: Applicable law and jurisdiction for dispute resolution