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A Master Factoring Agreement is a comprehensive legal document that establishes the ongoing relationship between you as the client (seller) and a factoring company in the Philippines. This agreement allows you to sell your accounts receivable to obtain immediate cash flow while the factor assumes responsibility for collecting payment from your customers. Under Philippine law, this document must comply with strict banking regulations and provides the foundation for multiple factoring transactions over time.

When do you need this document?

You need a Master Factoring Agreement when your business requires improved cash flow through receivables financing. This is particularly valuable for manufacturing companies, distributors, and service providers who sell to other businesses on credit terms. Small and medium enterprises often use factoring to bridge the gap between invoice issuance and payment collection, especially when dealing with customers who have 30-90 day payment terms. Export companies frequently rely on factoring to manage international trade receivables, while growing businesses use it to fund expansion without taking on traditional debt. The agreement is essential when you want to establish a long-term relationship with a factor rather than negotiating individual transactions.

Key legal considerations

Your Master Factoring Agreement must clearly define the assignment of receivables and ensure proper notification procedures to your debtors. The document should specify whether the factoring arrangement is with or without recourse, as this determines your liability if customers fail to pay. Credit limits, eligibility criteria for receivables, and pricing structures including discount rates and fees must be precisely outlined. The agreement should address collection procedures, dispute resolution mechanisms, and termination conditions. Security provisions may include personal guarantees, collateral requirements, or insurance arrangements. You must also consider confidentiality clauses to protect customer relationships and trade secrets. The document should specify reporting requirements, including regular submission of aging reports and customer information updates.

Legal requirements in Philippines

Under Republic Act No. 8791 (General Banking Law), only licensed banks and authorized non-bank financial institutions can engage in factoring activities in the Philippines. Your agreement must comply with Bangko Sentral ng Pilipinas (BSP) regulations, including capital adequacy requirements and risk management standards. The Civil Code provisions on assignment of credits (Articles 1324-1334) govern the legal transfer of receivables, requiring proper notification to debtors for the assignment to be effective against third parties. Electronic documentation must comply with Republic Act No. 8552 (Electronic Commerce Act) if digital signatures or electronic records are used. The agreement must include appropriate disclosure requirements under consumer protection laws when applicable. Tax implications under the Bureau of Internal Revenue regulations, including documentary stamp tax and value-added tax considerations, must be properly addressed in the agreement structure.