Distinguishing between lending against the security of receivables and purchasing receivables
Produced in partnership with DLA Piper (UK) LLP
Distinguishing between lending against the security of receivables and purchasing receivables

The following Banking & Finance guidance note Produced in partnership with DLA Piper (UK) LLP provides comprehensive and up to date legal information covering:

  • Distinguishing between lending against the security of receivables and purchasing receivables
  • Why use a lending structure?
  • How does a loan facility structure differ from a receivables purchase structure?
  • Purchasing v secured lending–fixed charges
  • Purchasing v secured lending–collecting receivables
  • Purchasing v secured lending–bans on assignment

This Practice Note gives a brief overview of the key legal issues and discussion points commonly encountered when asset-based lenders are deciding whether to offer receivables purchase/invoice discounting facilities or to provide a loan secured against the value of receivables.

There are fundamental differences between buying receivables (also known as debts) and lending on the security of receivables. Asset-based lenders in the UK have historically used invoice discounting facilities, which involves the purchase of receivables, to provide advances against the purchase price of those receivables and this is still the most common funding structure in the UK.

Under an invoice discounting facility, in consideration for payment of the purchase price, the asset-based lender receives title to the receivable, together with any ancillary rights related to that receivable, which can include, where the receivable relates to the sale of goods to the debtor, the right to returned goods and the right to repossess goods under retention of title provisions.

No rights are retained by the assignor in respect of the receivable. In particular, there is no obligation on the asset-based lender to re-sell the receivable to the assignor at any time. The sole right to collect payment of the receivable lies with the asset-based lender (although in practice, the assignor may be appointed as its agent, either on a disclosed or undisclosed basis, to collect