Cross-default
A clause that makes a default under one agreement also a default under another.
Why it matters
A cross-default clause means a problem in one credit agreement triggers a default in the factoring agreement as well, even if the seller is current on all factoring obligations. For a business with a bank line, equipment financing, and a factoring facility, a covenant breach with the bank could simultaneously put the factoring relationship in default. Cross-default provisions protect the factor by ensuring they are not funding a business that is technically in default with other creditors. Sellers should disclose all other credit facilities when entering a factoring relationship and should monitor compliance with all lender covenants.
How it appears in contracts
Cross-default language appears in the Events of Default section of the factoring agreement. Common language: it is an event of default if the seller defaults under any other material contract or credit agreement and such default gives the counterparty the right to accelerate or demand repayment. The scope varies: some cross-default clauses require an actual default; others are triggered by the mere existence of a right to accelerate, even if not exercised. Sellers should confirm whether the cross-default provision covers all agreements or only agreements above a defined dollar threshold, as unlimited cross-default provisions create significant unintended risk.
Related terms
Related reading
Sources
- International Factoring Association - International Factoring Association. Accessed 2026-05-19.
- Secured Finance Network - Secured Finance Network. Accessed 2026-05-19.