Legal Definitions - factor

A "factor" is a term with several distinct meanings, particularly in legal and financial contexts. It can refer to:

• A contributing element: In its most general sense, a factor is any element, circumstance, or influence that contributes to a particular outcome or result.
• An agent for sale: Legally, a factor is an agent hired by a principal (the owner) to sell goods. A key distinction is that a factor takes physical possession and control of the goods they are selling on behalf of the owner, usually for a commission. This differs from a broker, who typically does not take possession of the goods.
• A financial entity: In finance, a factor is a company that purchases a business's accounts receivable (money owed to the business by its customers) at a discount. This provides the selling business with immediate cash, while the factor assumes the responsibility and risk of collecting the payments from the original customers.

Examples:

• As a contributing element:

  In a product liability lawsuit, the plaintiff's legal team argued that a defective component was a significant factor in the machinery's malfunction, leading to their client's injury. Other factors considered by the court included the operating conditions and the maintenance schedule.

  Explanation: Here, "factors" refers to the various causes or reasons that contributed to the machinery's failure and the subsequent injury.

• As an agent for sale:

  An antique dealer inherited a large collection of rare books but lacked the time and expertise to sell them individually. They engaged a specialized auction house to act as a factor. The auction house took physical possession of the entire collection, cataloged each book, authenticated their provenance, and then managed the sale through a series of auctions, earning a percentage of the final sale price.

  Explanation: The auction house served as a factor because it took direct control and possession of the antique books to sell them on behalf of the owner, rather than simply connecting the owner with potential buyers.

• As a financial entity:

  A small software development firm had several large corporate clients who typically took 90 days to pay their invoices. To manage its payroll and operational expenses without interruption, the firm sold its outstanding invoices totaling $200,000 to a financial factor for $190,000. The factor then handled the collection of the full $200,000 from the corporate clients, providing the software firm with immediate working capital.

  Explanation: The financial factor enabled the software firm to convert its future income (accounts receivable) into immediate cash by purchasing the invoices, thereby taking on the responsibility and risk of collecting payments from the clients.