A receivables purchase is the acquisition by a financier of amounts owed to a business by its customers. The seller assigns its accounts receivable, or selected invoices, to the buyer and receives the face value less a discount that reflects the time until payment and the credit risk of the debtors. The terms are set out in a receivables purchase agreement.
The transaction is a sale, not a loan secured on the invoices, and much of its legal design is aimed at making that sale effective against the seller's creditors, known as a true sale. Whether the buyer can claim against the seller if a debtor fails to pay determines whether the seller may remove the receivables from its balance sheet. Receivables purchase is the common legal technique behind factoring, invoice discounting, forfaiting, supply chain finance programmes and trade receivables securitisation, all of which are forms of receivables finance.