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

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 receive better pricing terms than if it were to borrow on an unsecured basis

2. •

   credit lines—receivables purchase transactions may allow a seller to raise funds without using up credit lines with its financiers (though this will vary from financier to financier as different financial institutions have different rules on how they book receivables purchase transactions)

3. •

   negative covenants—a supplier might be prevented from raising financial indebtedness under its existing facilities but might be allowed to sell receivables on a limited recourse