Assignment of Accounts Receivable Non-Recourse Template

In plain language: Identifies the Assignor and Assignee by full legal name, describes the commercial relationship giving rise to the receivables, and records the effective date of the assignment.

Common mistake: Using a trade name instead of the registered legal entity for either party. Enforcement actions and UCC filings require the exact legal name; a mismatch can invalidate the filing or complicate litigation.

In plain language: Identifies the specific invoices, invoice numbers, debtor names, face amounts, and due dates being transferred — either as a schedule attached to the agreement or by reference to a master schedule updated with each advance.

Common mistake: Attaching a vague or incomplete schedule that omits invoice numbers or face amounts. An insufficiently described receivable may not be enforceable against the account debtor or may fail a perfection challenge.

In plain language: States the advance rate (e.g., 85% of face value), the dollar amount payable at closing, the timing of payment, and any reserve holdback to be released upon debtor payment.

Common mistake: Omitting the reserve release mechanism and timeline. Without clear terms for when and how the holdback is returned, disputes arise and the Assignee may delay release indefinitely.

In plain language: Expressly states that the Assignee bears the full credit risk of debtor non-payment and has no right to demand repayment from the Assignor solely because the account debtor failed to pay.

Common mistake: Drafting the non-recourse clause with broad carve-outs that swallow the protection — for example, excepting 'any disputed amount' without defining 'dispute.' Overly broad carve-outs effectively convert the agreement to a with-recourse arrangement.

In plain language: The Assignor represents that each assigned receivable is genuine, fully earned, not subject to offset or counterclaim, not previously assigned or pledged, and that the Assignor has the legal authority to transfer it.

Common mistake: Omitting the warranty that goods or services have been fully delivered. A receivable for undelivered services can be disputed or reduced by the debtor, exposing the Assignee to a loss the non-recourse provision does not cover.

In plain language: Requires the Assignor to promptly notify the account debtor of the assignment and direct all future payments to the Assignee, and specifies the form and timing of that notice.

Common mistake: Delaying or failing to send the notice of assignment. Until notified, account debtors can validly discharge their obligation by paying the Assignor, leaving the Assignee without recourse against the debtor.

In plain language: Governs who collects payments from the debtor, what happens if the Assignor receives a payment that should go to the Assignee, and the timeline for remitting any misdirected funds.

Common mistake: No trust or constructive-trust language for misdirected payments. Without it, a payment received by the Assignor and co-mingled with operating funds may be difficult to recover, especially in an insolvency.

In plain language: Requires the Assignor to cooperate in filing any UCC-1 financing statements, notify the Assignee of any disputes or credits that reduce a receivable, and execute any additional documents needed to perfect the transfer.

Common mistake: Treating perfection as optional or post-closing. An unperfected assignment in the US gives the Assignee no priority over a subsequent lien creditor or the Assignor's bankruptcy trustee.

In plain language: Requires the Assignor to indemnify the Assignee for losses arising from a breach of the Assignor's warranties — such as a receivable that turns out to be disputed, already assigned, or based on undelivered services — but not for debtor insolvency.

Common mistake: Conflating warranty-breach indemnification with recourse for non-payment. The indemnity covers Assignor fraud or misrepresentation; the non-recourse clause covers debtor credit failure. Merging the two undermines the non-recourse nature of the transaction.

In plain language: Specifies which jurisdiction's law governs the agreement and how disputes are resolved — typically arbitration or litigation in a named court.

Common mistake: Choosing a governing law that differs from the jurisdiction where UCC or PPSA perfection filings are made. Misalignment between the governing law and the perfection jurisdiction can create gaps in the Assignee's priority.

A non-recourse assignment of accounts receivable is a legal agreement in which a business sells its outstanding invoices to a buyer — typically a factoring company or lender — and the buyer accepts the full credit risk of debtor non-payment. If the underlying customer fails to pay because of insolvency or financial difficulty, the buyer cannot demand repayment from the original seller. This structure provides the seller with immediate liquidity while transferring credit exposure off its books.

In a recourse assignment, the Assignor remains liable to repay the Assignee if the account debtor defaults — the credit risk stays with the seller. In a non-recourse assignment, the Assignee absorbs the loss from debtor non-payment and cannot pursue the Assignor. Non-recourse transactions typically carry a higher discount rate (lower advance rate) because the buyer is pricing in the credit risk it is accepting. The choice between the two depends on the seller's tolerance for contingent liability and the buyer's assessment of debtor creditworthiness.

No. Non-recourse protection covers debtor non-payment due to financial inability or insolvency only. The Assignor remains liable for warranty breaches — for example, if an assigned receivable turns out to be disputed, already pledged, or based on goods that were never delivered. Carve-outs for Assignor fraud and misrepresentation are standard and enforceable. The non-recourse clause does not insulate an Assignor who misrepresents the quality of the receivables being transferred.

In the United States, filing a UCC-1 financing statement is not required for the assignment to be valid between the parties, but it is required to perfect the Assignee's ownership interest against third-party creditors and the Assignor's bankruptcy trustee. Without a timely UCC-1 filing, a later creditor who files can claim priority. In Canada, a similar filing under the applicable provincial Personal Property Security Act (PPSA) is required for perfection. In the UK and EU, registration requirements vary by jurisdiction and structure.

A notice of assignment is a written communication informing the account debtor that the receivable has been transferred and directing future payments to the Assignee. In most jurisdictions, the assignment is valid between the parties without notice, but the account debtor can continue to discharge its obligation by paying the original creditor until it receives notice. Sending notice promptly after execution is essential to protect the Assignee's right to collect directly from the debtor.

A true sale is a legal conclusion that the receivables transfer constitutes a genuine purchase rather than a disguised secured loan. True-sale treatment matters because it keeps the receivables off the Assignor's balance sheet, protects the Assignee from the Assignor's bankruptcy (the assets are no longer part of the estate), and avoids recharacterization risk. Courts assess true-sale based on factors including whether the transfer is absolute, the price reflects market terms, and the Assignor retains no residual economic interest. Professional legal review is recommended for any transaction where true-sale treatment is commercially important.

Yes. Future or not-yet-due receivables can be assigned in most jurisdictions, provided the underlying obligation exists at the time of assignment — for example, goods have been shipped or services rendered even if the invoice is not yet payable. Assigning receivables before the underlying performance is complete is riskier because the account debtor retains defences that may reduce the receivable's face value, potentially triggering the Assignor's warranty obligations.

The purchase price is usually expressed as an advance rate — a percentage of the receivable's face value — less a discount fee that reflects the Assignee's cost of funds, the tenor of the receivable, and the account debtor's creditworthiness. Advance rates for non-recourse factoring typically range from 80% to 92% of face value. The Assignee may also retain a reserve of 5–15% released upon debtor payment. The effective annual cost to the Assignor can range from 1.5% to 5% per month depending on these variables.

For straightforward domestic transactions with a single creditworthy debtor, a well-drafted template is a strong starting point. Legal review is strongly recommended when the transaction involves amounts over $100K, cross-border receivables, a debtor in a regulated industry, or any situation where true-sale treatment is important for balance-sheet or bankruptcy purposes. Errors in the non-recourse carve-outs, perfection filings, or notice procedures can significantly reduce the Assignee's protection and are difficult to correct after execution.