Contracts are important point in factoring. Normally, most factors will want you to sign it. Contracts act as a security agreement. The contract outlines:
The financial terms of the agreement
This point includes the number you receive up front, the discount rate, and how often you will use the factor's services in the allotted time.
 Your collateral
Factors think over your accounts receivable as your main source of collateral. By the way, they may also do a blanket lien against all of your company's assets.
Default provisions
For assuring the factor gets paid, this covers fraud, non-payment and various circumstances. Paying the invoice out of pocket or providing a substitute invoice of equal or greater value, you will satisfy the debt.
You have to read the contract carefully. Doing this, you’ll make sure there isn't anything that looks doubtful. Be attentive and find out whether there are the advance rates and fees clearly spelled out, whether you see any hidden or dubious fees. Get to know whether you will have to factor a certain number of invoices. It will be great if your attorney reviews the contract.
You have a chance to get a month-to-month agreement. But this is possible if you need occasional factoring services. A six-month or one-year contract will provide you with more leverage for negotiating a better discount rate. This is possible incase you will depend on frequent factoring services. So, you see that contract length vary based on your needs.
Moreover, some factors may require a contract even for one-time factoring. But you can sign it only when having made sure the contract is an open-ended agreement. Be sure, this will save you from paying double set-up fees if you need to factor in the future.
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