Where the bank has security over the invoices, how does Subordination work if we need Factoring?
In practice, the Factoring company, the business and the bank will negotiate. The objective is to allow the Factoring company to have priority over at least a portion of the invoice values. This is done by way of a Creditors Agreement.
For example, if there are $100,000 worth of invoices, the Agreement might allow the Factoring company to have priority on the first $50,000 worth of generated invoices, with the Bank secured over the remaining $50,000 (with or without additional collateral put up by the business).
In that case, now that the Factoring company has obtained security over the first $50,000 worth of invoices, they could factor the company up to that amount.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
In practice, the Factoring company, the business and the bank will negotiate. The objective is to allow the Factoring company to have priority over at least a portion of the invoice values. This is done by way of a Creditors Agreement.
For example, if there are $100,000 worth of invoices, the Agreement might allow the Factoring company to have priority on the first $50,000 worth of generated invoices, with the Bank secured over the remaining $50,000 (with or without additional collateral put up by the business).
In that case, now that the Factoring company has obtained security over the first $50,000 worth of invoices, they could factor the company up to that amount.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
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