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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 111676
Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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I engaged a 3rd party factoring firm to help expedite

Customer Question

I engaged a 3rd party factoring firm to help expedite payments on invoices from a single client of mine. Throughout the course of the engagement, the 3rd party factoring firm changed my credit limit with them and I subsequently redirected the payments from my clients to my business account. We have NO notification agreement in place.
Now, I owe my factoring company and have offered to settle with them but they are going directly to my client. The invoices they would like my client to pay on, were never submitted to my client (was working with an old manager and the invoices were never approved).
What are my options? I don't believe my client owes anything to the factoring firm but the factoring firm is sending demand letters to both me and my client.
Submitted: 1 year ago.
Category: Business Law
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
If you engaged the factoring company to do work for your customer, you would be liable to the factoring firm for payments you authorized, not your client. If the client was never invoiced, then you are liable to take care of the payment, not your client. Also, if your client had no contract with the factoring company, they have no privity of contract to make them liable to pay and that is between you and the factoring company.
Customer: replied 1 year ago.
Just so we're clear. I have/am providing services to a Company (Company A). I invoice Company A but have factored those invoices via a factoring company (Company F) to bring in my receivables sooner.I never invoiced my customer for the bulk of the outstanding balance but did factor based on the assumption I would be paid (bonus arrangement that never got fulfilled). Now, Company F (factoring company) is going after Company A (my client).The only contractual arrangement that exists is between me and Company F (factoring company) - its an Invoice Purchase and Security Agreement. Can they legally go after Company A (my client)?
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your reply and clarification.
No, they have no contract with your client, the contract is between your company and company F, there is no privity of contract with Company F and Company A, so company A would not be liable unless you gave rights over to Company F to those invoices (assigned them ot Company F).
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your reply. Please stop opening new questions for follow ups, use the REPLY button here. Thank you.
Both of those clauses make this a bit of a different story, because you are giving Company F the right in that contract to pursue your client for any accounts receivable that you are entitled to bill for. So you did give them the right to go after Company A.
Customer: replied 1 year ago.
Understand, so they have a legal standing to go after them. Correct?
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your reply.
Yes, if you had that contract with the assignment then they do have standing to go after your client.

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