Master Factoring Agreement Template for Canada

A Master Factoring Agreement is a comprehensive legal contract that establishes the framework for businesses to sell their accounts receivable to factors (financial institutions or factoring companies) under Canadian law. This agreement governs ongoing factoring relationships where you can sell multiple invoices over time, providing immediate access to working capital while transferring collection responsibilities to the factor.

When do you need this document?

You need a Master Factoring Agreement when your business requires regular cash flow improvements through receivables financing. This document is essential for manufacturing companies, distributors, and service providers who extend credit terms to customers and need immediate cash rather than waiting 30-90 days for payment. It's particularly valuable for growing businesses that cannot afford to tie up working capital in outstanding invoices, businesses facing seasonal cash flow fluctuations, or companies seeking to outsource their accounts receivable management and collection processes.

Key legal considerations

The agreement must clearly define the purchase and sale mechanics for receivables, including eligibility criteria for acceptable accounts and the calculation of purchase prices. You need to understand the difference between recourse and non-recourse factoring, as this affects your liability if customers fail to pay. The contract should specify factoring fees, reserve amounts, and payment terms, while addressing how disputes and chargebacks are handled. Critical provisions include representations and warranties about receivables quality, notification procedures to account debtors, and termination clauses. The agreement must also address security interests, ensuring proper protection for the factor while maintaining your ability to conduct business operations.

Legal requirements in Canada

Under Canadian law, factoring agreements must comply with the Personal Property Security Act (PPSA) in each province, requiring proper registration of security interests to protect the factor's rights in purchased receivables. The agreement must satisfy Bank Act requirements if the factor is a federally regulated financial institution, and comply with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act for customer identification and transaction monitoring. Provincial Assignment of Book Debts Acts may require specific registration procedures and notice provisions. The contract must address Bankruptcy and Insolvency Act implications, ensuring the factor's interests are protected if either party faces insolvency. Additionally, the agreement should comply with applicable consumer protection legislation when factoring involves consumer accounts, and include proper choice of law and jurisdiction clauses for Canadian courts.