What is A Factoring Master Agreement (FMA)?

A Factoring Master Agreement (FMA) is a comprehensive contract between a business and a factoring company that outlines the terms and conditions under which the factoring services will be provided. For a UK audience, understanding the FMA is crucial for ensuring clarity and compliance in the factoring arrangement.


Key Aspects of a Factoring Master Agreement (FMA):

  1. Definition:
    • A Factoring Master Agreement (FMA) is a legally binding contract that details the relationship between a business (the client) and a factoring company (the factor). It specifies the terms, conditions, and obligations related to the sale of the business’s accounts receivable to the factor.
  2. Purpose:
    • Clarity and Structure: Provides a clear framework for the factoring relationship, outlining the responsibilities and expectations of both parties.
    • Risk Management: Addresses issues such as credit risk, collection procedures, and dispute resolution to manage potential risks effectively.
    • Legal Compliance: Ensures that both parties adhere to relevant legal and regulatory requirements, protecting their interests.
  3. Key Components of an FMA:
    • Definitions: Clarifies key terms used in the agreement, such as “accounts receivable,” “advance rate,” “invoice,” “repurchase,” and “recourse.”
    • Scope of Services: Specifies the services provided by the factor, including the purchase of receivables, credit management, and collection services.
    • Advance Rate and Fees: Details the percentage of the invoice value that will be advanced to the client and the fees charged for the factoring services. This can include discount fees, service fees, and other charges.
    • Purchase and Assignment of Receivables: Outlines the process for submitting invoices to the factor, the criteria for acceptance, and the transfer of ownership of the receivables.
    • Repayment and Collections: Describes how payments from customers will be handled, including the factor’s role in collecting payments and the procedures for handling late or non-payments.
    • Recourse and Non-Recourse Factoring: Specifies whether the factoring is with recourse (the client remains liable for unpaid invoices) or non-recourse (the factor assumes the credit risk).
    • Warranties and Representations: Includes statements made by the client about the validity and enforceability of the receivables, and the factor’s assurance of their ability to perform the agreed services.
    • Termination: Details the conditions under which the agreement can be terminated by either party, including notice periods and any penalties or obligations upon termination.
    • Dispute Resolution: Outlines the procedures for resolving disputes between the parties, which may include mediation, arbitration, or litigation.
    • Confidentiality: Includes provisions to protect the confidentiality of the information exchanged between the parties during the term of the agreement.
  4. Example:A UK-based textile manufacturer enters into a Factoring Master Agreement with a factoring company to improve its cash flow. The FMA includes the following terms:
    • Advance Rate: 85% of the invoice value.
    • Discount Fee: 2% of the invoice value.
    • Service Fee: 0.5% of the invoice value.
    • Recourse Period: 90 days (the client must repurchase any unpaid invoices after this period).

    This agreement provides the manufacturer with immediate cash for its receivables while clearly outlining the costs and responsibilities associated with the factoring arrangement.

  5. Benefits:
    • Financial Clarity: Ensures that both parties understand the financial terms, including fees and advance rates.
    • Operational Efficiency: Establishes clear procedures for submitting invoices and receiving advances, improving cash flow management.
    • Risk Mitigation: Addresses potential risks and outlines procedures for managing late payments and non-payments.
    • Legal Protection: Provides a legal framework that protects the interests of both the client and the factor.
  6. Considerations:
    • Review and Negotiation: Carefully review the FMA and negotiate terms that are favorable and aligned with the business’s needs.
    • Legal Advice: Seek legal advice to ensure that the agreement complies with UK laws and adequately protects the business’s interests.
    • Understanding Obligations: Ensure that all parties fully understand their obligations and the implications of the terms outlined in the FMA.


A Factoring Master Agreement is a critical document that defines the relationship between a business and a factoring company. For UK businesses, understanding the components and implications of an FMA ensures a clear, structured, and legally compliant factoring arrangement. By carefully reviewing and negotiating the terms of the FMA, businesses can optimize their cash flow management while mitigating potential risks.