A receivables purchase agreement (RPA) is a contract under which a company (the seller) sells its trade receivables, the amounts its customers owe it, to a bank, factor or investor (the purchaser) in return for a discounted price paid upfront. It sets out which receivables can be sold, how the price is calculated, which risks stay with the seller, and how customer payments reach the purchaser. RPAs are the legal backbone of non-recourse factoring, reverse factoring programmes, receivables securitization and bank receivables purchase facilities.
An RPA is a sale document, not a loan agreement, and much of its drafting aims to make the transfer a true sale that will survive the seller's insolvency. The same deal can still be treated as debt by accountants or rating agencies if the seller keeps too much risk. Contracts follow national contract and assignment law; industry bodies such as BAFT and ITFA publish standard forms for bank-to-bank risk sharing in these deals.
A receivables purchase agreement in plain terms
Suppose a company has a drawer full of invoices that customers will pay in 60 days. A bank agrees to buy those invoices today for slightly less than they are worth. The receivables purchase agreement is the rulebook for that deal: which invoices the bank will take, what it pays, and what happens when things go wrong.
It answers questions like: what if the customer pays the company instead of the bank? What if the goods were faulty and the customer pays less? What if the customer goes bust? Because the answers decide who loses money and when, the rulebook matters as much as the price. A clear one lets the company treat the invoices as truly sold, and lets the bank feel confident it owns them.
Key clauses
- Eligibility criteria. Which receivables qualify: approved debtors, currencies, maximum tenor, no disputes, not already pledged, and governed by an acceptable law.
- Purchase price. Face value minus a discount for the expected time to payment, usually priced at a benchmark interest rate such as SOFR plus a margin reflecting the debtor's credit.
- Representations and warranties. The seller promises each receivable is genuine, owed in full and free of set-off.
- Repurchase obligations. The seller must buy back receivables that breach these warranties, which is different from credit recourse.
- Dilution. The seller bears reductions from returns, credit notes and rebates.
- Servicing. The seller usually keeps collecting as the purchaser's agent and passes collections over on agreed dates.
- Notice of assignment. Whether debtors are told about the sale, and when the purchaser can take over collection.
- Termination events. Seller insolvency, servicing failures or a fall in portfolio quality end new purchases.
Credit risk versus dilution risk
RPAs separate two kinds of loss. Credit risk is the debtor failing to pay because it cannot, which in a non-recourse RPA falls on the purchaser. Dilution risk is a receivable shrinking for commercial reasons: a return, a pricing dispute, a volume rebate. That stays with the seller through repurchase and indemnity clauses. Getting the split right is what distinguishes an RPA from recourse factoring, where the seller also carries credit losses. Purchasers often insure the credit risk they take on with trade credit insurance or share it with other banks through risk participations.
True sale and accounting
For a true sale opinion, lawyers look at whether the purchaser has real ownership: limited recourse to the seller, a fixed price not adjusted later for losses, no right for the seller to take receivables back at will, and proper perfection of the assignment. In the United States, sales of accounts are themselves within Article 9 of the Uniform Commercial Code, so purchasers file a financing statement to protect their interest against other creditors.
Accounting follows separate tests. Under IFRS 9, the seller derecognises receivables if it transfers substantially all risks and rewards, or if it transfers neither but gives up control. Under US GAAP, ASC 860 requires legal isolation, the purchaser's right to pledge or sell, and no effective control retained by the seller. A seller that achieves derecognition reports lower receivables and better days sales outstanding; one that does not reports a secured borrowing.
Common structures
An RPA can be a one-off sale of a single large invoice, a revolving programme buying receivables from a named list of debtors every month, or a buyer-led programme in which the buyer confirms invoices and a bank buys them from its suppliers, usually run on a supply chain finance platform. Large companies use committed RPAs as an alternative to revolving credit facilities, because the funding grows with sales. Banks running these programmes still apply KYC and fraud checks on the underlying invoices, since fictitious or double-financed receivables are the most common source of losses. Purchasers also set aside provisions for expected credit losses on the debtors they hold.