Texas Debt Factoring

Written by Patricia Tunstall
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Banks have become competitors of factoring companies for debt factoring. In the last decade or so, banks have apparently decided that accounts receivable financing is rewarding for them and for their customers. Their aim has been to reach smaller businesses with good credit and potential for growth that are in need of a steady cash flow.

Banks as Factors

Banks have several advantages over factoring companies, not the least of which is their persuasiveness when it comes to invoice collections. Debt factoring, or accounts receivable financing, is serious business, and a call from a bank about payment looms large in a person's mind. An individual business owner can make the same call and be ignored, but a bank's request has credit reports and other serious consequences behind it.

In North America, the factoring industry is unregulated, with the exception of bank factors, because they are under the auspices of the Federal Reserve Bank. There are so many state and federal laws that affect certain aspects of these operations, however, that, in effect, the industry as a whole has accountability. Nevertheless, the banking industry has far greater scrutiny from government officials than does the factoring industry.

State laws that apply to this industry include usury and contract laws. Federal legislation has jurisdiction over debt-creditor and bankruptcy areas. The Uniform Commercial Code (UCC) was developed in the 1950s to provide guidelines for states to govern business that crossed state lines. States can use these guidelines as they wish, or ignore them, but Article 9 is particularly relevant to factoring, as it discusses secured transactions.

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