Legal Definitions - del credere factor

A del credere factor is a type of commercial agent who sells goods on behalf of another party (the "principal") and, in exchange for an additional commission, guarantees payment from the buyers. This means that if a customer fails to pay for the goods purchased, the del credere factor is personally responsible for making that payment to the principal.

Essentially, a del credere factor takes on the credit risk associated with the buyers. While a standard factor's responsibility ends once a sale is made, a del credere factor provides an extra layer of financial security to the principal by insuring against the buyer's potential default.

Here are some examples to illustrate this concept:

• Imagine an independent artist (the principal) who creates unique sculptures. They partner with an art gallery (the factor) to display and sell their work. The artist, wanting to ensure a steady income and avoid the risk of buyers defaulting, agrees to pay the gallery an extra percentage on each sale. In return, the gallery acts as a del credere factor. If a collector purchases a sculpture on an installment plan and later fails to make their payments, the gallery is still obligated to pay the artist the full agreed-upon price for the sculpture. The gallery then bears the burden of collecting from the defaulting collector.

• Consider a small organic farm (the principal) that grows specialty produce. They contract with a large food distribution company (the factor) to sell their vegetables to high-end restaurants and grocery stores. The farm is concerned about the financial stability of some of the buyers and negotiates a higher commission rate with the distributor. This higher rate makes the distributor a del credere factor. If one of the restaurants that bought a large order of produce goes out of business before paying, the distribution company must still pay the organic farm for the produce it sold on their behalf. The distributor assumes the financial loss from the restaurant's default.

• A boutique clothing designer (the principal) wants to expand their reach and partners with a fashion sales agency (the factor) to sell their collections to various retail stores. To mitigate the risk of retailers not paying, the designer agrees to give the agency an increased commission. This arrangement makes the agency a del credere factor. If a retail store places a large order for the designer's clothing but then declares bankruptcy before settling its invoice, the fashion sales agency is responsible for paying the designer the amount owed for that order. The agency effectively guarantees payment to the designer.