Accounts Receivable Purchase Agreement Sample

Accounts Receivable Purchase Agreement Sample: What You Need to Know

As a business owner or financial professional, you may have heard of an accounts receivable purchase agreement. This type of transaction allows businesses to sell their outstanding invoices or accounts receivable to a third-party lender in exchange for immediate funding. If you are considering this option for your business, it is important to understand the legal and financial implications of an accounts receivable purchase agreement.

To help you understand the key components of this type of agreement, we have prepared a sample accounts receivable purchase agreement for reference:

The Parties Involved

First, you need to identify the parties involved in the agreement. This typically includes the seller (your business), the purchaser (the lending institution), and any third-party service providers or agents involved in the transaction.

The Purchase Price

Next, you will need to define the purchase price for the accounts receivable. This is typically expressed as a percentage of the total accounts receivable being sold. The purchase price will depend on a number of factors, including the creditworthiness of the accounts, the size of the invoices, and the risk involved in collecting the accounts.

Representations and Warranties

Both parties should include representations and warranties in the agreement. These provisions outline each party’s obligations and responsibilities throughout the transaction. For example, the seller may warrant that the accounts receivable are valid and enforceable, and that there are no disputes or legal issues with the accounts. The purchaser may warrant that it has the legal right to purchase the accounts and that it will apply standard collection practices to recover the accounts.

Payment Terms

The agreement should also spell out the payment terms for the transaction. This includes the amount of funding the seller will receive upfront, any fees or commissions charged by the purchaser or third-party service providers, and the timing of any future payments. Payment terms may be structured as a lump sum payment upfront or as a percentage of each invoice collected by the purchaser.

Confidentiality and Non-Disclosure

Finally, it is important to include confidentiality and non-disclosure provisions in the agreement. This is particularly important if you are selling sensitive customer or financial information as part of the accounts receivable transaction. These provisions protect both parties from unauthorized disclosure or use of confidential information and may include penalties for breaches of confidentiality.

Conclusion

An accounts receivable purchase agreement can be a valuable tool for businesses seeking to improve their cash flow or secure financing without taking on additional debt. However, it is important to carefully review the terms and conditions of any agreement and consult with legal and financial professionals before entering into a transaction. With a clear understanding of the key components of an accounts receivable purchase agreement, you can make informed decisions for the financial health of your business.