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Debt Factoring Agreement for Saudi Arabia

Debt Factoring Agreement Template for Saudi Arabia

This document establishes a Sharia-compliant debt factoring arrangement under Saudi Arabian law, whereby a business (Client) assigns its accounts receivable to a financial institution (Factor) in exchange for immediate working capital. The agreement details the terms of purchase, collection rights, profit rates, and obligations of all parties involved, ensuring compliance with Saudi Arabian banking regulations and Islamic finance principles. It includes specific provisions for receivables management, credit risk assessment, and dispute resolution mechanisms while adhering to the requirements of the Saudi Arabian Monetary Authority (SAMA) and relevant commercial laws.

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What is a Debt Factoring Agreement?

The Debt Factoring Agreement is essential for businesses in Saudi Arabia seeking to improve their cash flow through the sale of their accounts receivable. This document is used when a company wishes to access immediate working capital by selling its receivables to a financial institution at a discount. The agreement must comply with Saudi Arabian law and Sharia principles, particularly regarding the treatment of interest and uncertainty. It outlines the entire factoring relationship, including purchase terms, collection procedures, profit structures, and risk allocation. The document is crucial for both factors and businesses operating in Saudi Arabia's developing factoring market, especially following recent regulatory developments that have enhanced the framework for factoring operations. It includes comprehensive provisions for credit assessment, debtor notification, payment processing, and dispute resolution, all structured to meet local regulatory requirements and business practices.

What sections should be included in a Debt Factoring Agreement?

1. Parties: Identification of the Factor and the Client (including registration details and addresses)

2. Background: Context of the agreement and brief description of the parties' business relationship

3. Definitions and Interpretation: Definitions of key terms and interpretation rules, including Sharia-compliant terminology

4. Assignment of Receivables: Terms and conditions for the assignment of debts from Client to Factor

5. Purchase Price and Payment Terms: Calculation of purchase price, advance payment percentage, and payment mechanics in Sharia-compliant manner

6. Client's Representations and Warranties: Client's confirmations regarding their business, receivables, and compliance with laws

7. Factor's Rights and Obligations: Factor's responsibilities, including collection rights and notification procedures

8. Client's Covenants: Ongoing obligations of the Client throughout the agreement term

9. Collection and Management of Receivables: Procedures for collecting and managing assigned receivables

10. Fees and Charges: Detailed breakdown of all applicable fees and charges in Sharia-compliant structure

11. Term and Termination: Duration of agreement and circumstances allowing termination

12. Events of Default: Circumstances constituting default and consequences

13. Indemnification: Mutual indemnification obligations

14. Confidentiality: Protection of confidential information

15. Governing Law and Jurisdiction: Saudi Arabian law as governing law and jurisdiction provisions

16. Notices: Communication methods and contact details for notices

What sections are optional to include in a Debt Factoring Agreement?

1. Sharia Compliance: Detailed section on Islamic finance compliance - required if the agreement needs explicit Sharia compliance provisions

2. Credit Protection: Terms for non-recourse factoring - included when Factor assumes credit risk

3. Electronic Trading Platform: Provisions for digital factoring services - included when using electronic platforms

4. International Transactions: Additional provisions for cross-border factoring - required for international arrangements

5. Security Arrangements: Additional security requirements - included when collateral is required

6. Insurance: Insurance requirements - included when specific insurance coverage is needed

7. Data Protection: Specific data protection provisions - required when handling sensitive data

8. Agency Provisions: Required when Factor acts as agent for collection

What schedules should be included in a Debt Factoring Agreement?

1. Schedule 1 - Eligible Receivables Criteria: Detailed criteria for receivables that can be factored

2. Schedule 2 - Fee Schedule: Detailed breakdown of all fees, charges, and profit rates

3. Schedule 3 - Operational Procedures: Day-to-day operational procedures and requirements

4. Schedule 4 - Form of Assignment Notice: Template for notifying debtors of the assignment

5. Schedule 5 - Reporting Requirements: Templates and timing for required reports

6. Schedule 6 - KYC Requirements: Required documentation for client verification

7. Schedule 7 - Approved Debtors List: List of pre-approved debtors and their credit limits

8. Appendix A - Collection Procedures: Detailed procedures for collecting receivables

9. Appendix B - Technology Requirements: Technical specifications for electronic interface if applicable

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Saudi Arabia

Publisher

Ƶ

Document Type

Finance Agreement

Cost

Free to use
Relevant legal definitions






















































Clauses







































Relevant Industries

Banking and Financial Services

Manufacturing

Wholesale Trade

Retail

Construction

Healthcare

Technology

Telecommunications

Transportation and Logistics

Professional Services

Industrial Services

Import/Export

Energy

Real Estate

Relevant Teams

Finance

Legal

Compliance

Risk Management

Treasury

Operations

Credit

Collections

Business Development

Accounts Receivable

Islamic Banking

Commercial

Relevant Roles

Chief Financial Officer

Finance Director

Treasury Manager

Credit Manager

Accounts Receivable Manager

Legal Counsel

Compliance Officer

Risk Manager

Commercial Director

Operations Manager

Financial Controller

Credit Analyst

Business Development Manager

Factoring Operations Manager

Sharia Compliance Officer

Collections Manager

Industries










Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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