Factoring Companies Guidebook
Distributors Agreements
Definition
Where the Client or its customers are distributors.
Concerns
The Client may act as an Agents under a Distribution Agreement with its suppliers and not actually take title of the goods.
There may be onerous clauses within the Agreement, which affect the collectability of the debt if certain terms or conditions are not fulfilled, also potentially creating erosion of the book debts due to offset.
The Distribution Agreement terms may include items such as delivery/response times, responsibility for lost or damaged goods in transit and penalty clauses for non-fulfillment (see "Liquidated Damages").
If the Client utilises Distribution under Formal Agreements, it too may simply be an agent and may have the responsibility for collecting the debts, which we need to ensure, if funded, are passed through to it. Distributors in this position may seek to collect and retain debtor receipts if they are owed fees by the Client. Distribution agents, if they are listed on the sales ledger, will also conceal the ultimate customer/debtor from us and therefore the ability to recover funds from that customer, if necessary.
Identification
Make enquiries with the Client as to whether they act as or employ Distributors under formal Agreements.
Review Terms & Conditions of sale and purchase.
Review the Sales and Purchase ledgers together with the Management Accounts for any liabilities or accruals, or other income which may relate to Distributor Agreements.
Treatment
Copies of the Distributor Agreement should be obtained and reviewed for factorability issues.
If our Client is acting as a distributor under such an arrangement, then this debt or Client may be non factorable.
