Receivables Purchase Agreements

In the process of doing business, an operating company creates receivables. If they are sold to a finance company, the process is supported by the purchase of debts. In 2016, the global debt market amounted to 2.355 billion euros2, with Asia providing almost a quarter of this market. Unsurprisingly, China leads the trade finance volumes in Asia and is the world`s second largest market after the UK 3. It is important to determine the value and quality of each asset purchased. In the case of a debt, its value and quality are determined by the terms of the sale agreement. Even if it is not possible or practical to review in detail each provision of the sales contract, one should at least consider reviewing the sales contract: a shoe store is in the store to sell shoes. There`s a restaurant to sell meals. Both are not active to recover unpaid debts. However, other companies specialize in it. If such a company could buy debts at z.B.

90 cents on the dollar and then recover the total amount of the receivables, it would make a nice profit. Financial institutions are also frequent buyers of debt. You can hold them as assets or consolidate the receivables of many companies and sell shares of the package to investors looking for a constant flow of income. Instead of waiting to get money back, a company can sell its receivables to another company, often with a discount. The company then receives cash in advance and no longer has to deal with the uncertainty of waiting or the anger of the collection. Today, innovative technology has transformed debt financing into one of the most widely used forms of financing. The increase in popularity has resulted in the increase in fintech companies (particularly technology start-ups) in the debt financing sector. Some of these fintechs offer borrowers the opportunity to finance receivables on their platform quickly and with minimal effort. It is important to check whether claims on levies, rebates, rebates or penalties are transferred – because these provisions can sweeten the receivables the financier buys. By selling his future debt stream, a seller can better manage his cash flow without bearing the burden of a credit, which may include stricter conditions.

An RPA structure acts more as an asset sale than as an increase in a seller`s debt. Thus, a seller can monetize future liabilities while ensuring that his other assets remain as they are. But the arrangement requires careful planning. Unlike a revolving loan that can be used at any time, the financing of the RPP depends on whether or not there are receivables for sale. In addition, buyers can often claim more for an RPP than for a traditional loan. Instead of waiting to recover unpaid debts, a company can sell its debts to someone else, usually with a discount. The company receives money in advance and does not have to deal with the stress of collecting or waiting. Receivables may be a significant asset of an entity; The sooner they are converted into cash, the sooner the company can use that money for something else. The points outlined in this article are by no means exhaustive. The underlying facts of each transaction often differ from case to case.

It is therefore important to obtain informed legal advice at an early stage, so that the relevant risks can be identified and properly taken into account when structuring a debt financing transaction.