Factoring agreement vs. assignment
While assignment is a procedure involving only the sale of receivables, the factoring service provides for the possibility of selling multiple receivables while benefiting from additional services, such as monitoring receivables or assessing the financial situation of the counterparty, as well as the possibility of securing against the insolvency of the debtor.
A factoring agreement belongs to unnamed (mixed) contracts. This means that it consists of elements typical of different types of writings, for example, assignment, loan agreements or assignment contracts. Accordingly, there are a number of factoring agreement templates and models.
For more on the differences between factoring and assignment of receivables, see the article: Assignment of receivables – what is it and how does it work?
What does a factoring agreement look like?
Let’s try to go through the sample document step by step. As in any contract, at the outset, the parties to the factoring agreement should be comprehensively defined, that is, all relevant identifying data of both the client and the factor should be included.
Introduction to the agreement
It is worth knowing that in a factoring agreement, the parties are only the client (sometimes also called the factor ) and the factor. The debtor is not a party to the factoring agreement, although as indirectly involved in the case, he will be informed of the sale of the claim.
Further contents of the document
- No factoring agreement can do without a detailed description of the claim – what is the value of the invoice, the date of payment, to whom it is owed, who is the debtor, by what title and under what agreement. The description of the receivables is worth supplementing with a set of documents supporting them, including an invoice or purchase order – it is worth emphasizing here that the receivable subject to factoring must be covered by a properly issued VAT invoice, which is an attachment to the contract.
- Further write down the information on the transfer of receivables in the factoring agreement, specify the rules for notifying the debtor of the change in the owner of the receivables, and details of additional services (if selected by the customer). This is also the right place to indicate the type of factoring the customer has decided on.
- The factoring agreement must not lack assurances from the client as to the legal status of the claim: confirmation that the claim is not time-barred or seized by an enforcement authority.
- The factoring agreement also defines the mutual financial relationship between the client and the factor, including the terms of payment by the factor of the price for the receivables and the amount of remuneration due to the factor for financing based on factoring.
- A properly drafted contract also specifies the entity bearing the risk of the debtor’s insolvency. Depending on the type of factoring chosen(factoring with or without recourse), the risk may be borne by the client or the factor.
- The factoring agreement specifies legal collateral such as a promissory note.
Finally, the signatures of the factor and the client remain to be completed – as soon as both parties sign the agreement, it becomes legally binding.
Under modern fintech financing, it is possible to conclude an effective agreement online without exchanging signed documents.
04.03.2026 
