Factoring Agreement Template for New Zealand

A factoring agreement is a commercial contract where your business sells its accounts receivable to a financial institution (the factor) in exchange for immediate cash flow. Under New Zealand law, this arrangement allows you to convert outstanding invoices into working capital while transferring collection responsibilities and credit risk to the factor. The agreement establishes comprehensive terms for the ongoing purchase and sale of receivables, operational procedures, and risk allocation between parties.

When do you need this document?

You need a factoring agreement when your business experiences cash flow challenges due to extended payment terms from customers, requires immediate working capital for growth opportunities, or wants to transfer credit risk and collection responsibilities to a specialist provider. This arrangement is particularly valuable for businesses with substantial trade receivables, seasonal cash flow variations, or rapid growth requiring consistent funding. Manufacturing companies, wholesalers, and service providers with business-to-business sales commonly use factoring to maintain steady cash flow while outsourcing credit management functions.

Key legal considerations

The agreement must clearly define eligible receivables, establishing criteria for invoices that qualify for purchase including debtor creditworthiness, payment terms, and documentation requirements. Advance rates and fees structure requires careful negotiation, typically ranging from 70-90% of invoice value with additional fees for credit protection and collection services. Representations and warranties clauses protect the factor by ensuring receivables are genuine, undisputed, and free from prior assignments or security interests. Recourse provisions determine whether you remain liable if customers fail to pay, with non-recourse factoring transferring credit risk entirely to the factor. The agreement should address notification procedures, determining whether customers are informed of the assignment and directed to pay the factor directly.

Legal requirements in New Zealand

Under the Contract and Commercial Law Act 2017, the assignment of receivables must comply with specific formation and notice requirements to be legally effective against debtors. The Personal Property Securities Act 1999 requires registration of security interests in accounts receivable to establish priority over competing claims and protect the factor's interest. Factors must register under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 and comply with dispute resolution requirements when providing credit services. The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 imposes customer due diligence obligations, requiring identity verification and ongoing transaction monitoring. Credit Contracts and Consumer Finance Act 2003 may apply if the arrangement includes credit facilities or consumer transactions, requiring disclosure of fees, interest rates, and consumer protection measures.