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Introduction to receivables purchase transactions

Invoice discounting and factoring are types of receivables purchase transactions whereby a supplier of goods and/or services (frequently referred to as the seller or the supplier) sells (typically by way of assignment) the receivables owing to it by the buyer of such goods and/or services (frequently referred to as the buyer or the account debtor), often with all related rights. Such receivables purchase transactions are frequently made at a discounted purchase price. However, it is also possible to purchase receivables for a purchase price equal to their face value with the supplier paying a purchase fee to the purchaser.

There are a number of reasons why suppliers may prefer to elect to sell receivables (on a no recourse or limited recourse basis) instead of borrowing. These reasons can include:

1. •

   pricing—if the account debtor is a better credit risk than the supplier, the supplier might