Governing law

Which state's law the contract says will control disputes.

Why it matters

Governing law can affect contract interpretation, remedies, and UCC priority. A factor based in Texas may specify Texas law governs the agreement even if the seller operates in California. This matters when disputes arise: the seller must apply the laws of the specified state, which may differ from the seller home state on issues like UCC filing requirements, statute of limitations, or the enforceability of specific contract provisions. Some states have more creditor-favorable remedies after default, which benefits the factor but limits the seller options.

How it appears in contracts

The governing law clause appears near the end of the factoring agreement in the General or Miscellaneous section. It typically reads: This Agreement shall be governed by and construed in accordance with the laws of the State of [state], without regard to conflict of laws principles. The forum selection clause often accompanies the governing law provision, specifying where disputes must be litigated. Sellers should verify that the chosen governing state does not conflict with applicable commercial lending disclosure laws in their operating state.

Related terms

Related article: Default clauses in factoring agreements

Related reading

Sources

  • International Factoring Association - International Factoring Association. Accessed 2026-05-19. Industry association source for factoring terminology and industry context.
  • Secured Finance Network - Secured Finance Network. Accessed 2026-05-19. Industry education source for secured finance and asset-based lending context.
Financial disclaimer. This page is educational only and is not financial, legal, tax, accounting, or credit advice. Factoring terms vary by provider and contract. Read the full disclaimer.