Factoring Companies Guidebook
Contractual Sales
Sales that are made according to a formal written Contract.
Concerns
There are a number of concerns to us, which can arise in a contract:
A Long Term Contract may give rise to Stage Invoicing
A Fixed Price Contract may prove onerous to the Client at a later date.
- There may be a Ban on Assignment clause.
There may be Penalty Clauses for non-fulfillment. These would normally involve claims for damages or at least a reduction in the amount due under the Contract. Also known as "Liquidated Damages" clauses, they may also give the customer the right to have the work completed elsewhere at the expense of the Client. Non-fulfillment may include lateness of delivery.
There may be Retention's pending satisfactory operation of the equipment for a period of time, or satisfactory Installation or Commissioning of the Equipment.
Identification
Enquire with the client as to whether they have any Contracts in place with their customers. Contracts are likely where the items are large value or of a long-term nature, however they may occur anywhere. Review orders and Invoices which may refer to a Contract Number or give any indication of conditional payment or Stage Invoicing.
Treatment
Copies of the Contracts with the major customers should be obtained for review. Where any of the above concerns feature then the debt may need to be fully reserved or excluded. Where there is a large proportion of contractual work, the business may be unsuitable for a facility.
