Purchased-Receivables Concepts
In a purchase-of-receivables structure, the funder buys a portion of the business’s future receivables for a lump sum, and the business remits a portion of receivables until the purchased amount is paid. The structure affects how the transaction is characterized and what remedies are available.
Security Interests in Receivables
In addition to (or instead of) a purchase structure, a funder may take a security interest in receivables as collateral, perfected by a UCC filing. This gives the funder a priority claim over receivables relative to other creditors.
Receivables-Related Contractual Provisions
Agreements may include assignments of receivables, directions to pay the funder, lockbox arrangements, or provisions governing processor and customer communications. These provisions define the merchant’s obligations and the funder’s rights.
A Purchase of Receivables and a Security Interest Are Not Identical
A purchase conveys ownership of specified receivables; a security interest creates a collateral claim. The distinction can affect enforcement and defenses. The agreement should be reviewed.
Default and Enforcement
On default, a funder may pursue contractual remedies (drawing on ACH, enforcing a security interest), UCC enforcement, or litigation. Enforcement of a security interest in receivables follows Article 9 of the UCC and applicable law, which may include notice and disposition requirements.
When Qualified Counsel May Be Appropriate
Receivables issues can affect customer relationships, processor relationships, and financing. Qualified legal counsel may review the agreement, the UCC filing, the validity and priority of claims, and potential responses.
Key Distinctions
Receivables bought by the funder under a purchase-of-receivables structure.
A creditor’s collateral claim in receivables, perfected by a UCC filing.
A contractual transfer of specified receivables or rights to the funder.
A public notice that perfects a security interest in receivables.
Key Takeaways
- 01Receivables are central to most MCAs and to many enforcement actions.
- 02A purchase of receivables and a security interest are related but distinct.
- 03Receivables provisions can affect customers, processors, and financing.
- 04Receivables disputes may warrant review by qualified counsel.
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