Assignment of Accounts Receivable With Recourse Template

In plain language: Identifies the assignor and assignee as legal entities, states the purpose of the agreement, and establishes that the assignment is made with full recourse against the assignor.

Common mistake: Using trade names instead of registered legal entity names — if the assignor entity name does not match the entity holding the receivables, the assignment may be ineffective against third parties or in bankruptcy.

In plain language: Identifies the specific invoices or receivables being transferred, including debtor names, invoice numbers, face amounts, and due dates, typically in an attached schedule.

Common mistake: Describing receivables in vague terms without a detailed schedule — 'all outstanding invoices' without a schedule makes it impossible to determine which receivables were actually assigned if a dispute arises.

In plain language: States the amount the assignee will pay upfront for the receivables, expressed as a percentage of face value, and how the reserve will be released once collection is complete.

Common mistake: Not specifying the reserve release timeline or conditions — leaving the reserve mechanics undefined creates disputes when collection is partial or delayed.

In plain language: Defines the assignor's obligation to repay the advance or repurchase the receivable if the debtor does not pay within a specified period, and the mechanics for calculating the repurchase price.

Common mistake: Setting the recourse trigger period too short — a 30-day recourse trigger on Net 60 invoices means the assignor is liable before the debtor's payment deadline has even passed, exposing the assignor to premature recourse calls.

In plain language: Statements by the assignor confirming that the receivables are genuine, legally enforceable, free from liens, not in dispute, and that the assignor has authority to assign them.

Common mistake: Warranting that receivables are 'free from all liens' without first conducting a UCC, PPSA, or Companies House search — if a prior lender has a blanket lien over receivables, this warranty is immediately breached and the assignment may be subordinate.

In plain language: Specifies whether and when debtors will be notified of the assignment, and directs them to remit payment directly to the assignee.

Common mistake: Delaying debtor notification while the assignor continues to collect — payments received by the assignor after assignment that are not remitted promptly create commingling issues and may constitute fraud against the assignee in some jurisdictions.

In plain language: Ongoing obligations the assignor must meet during the agreement — such as not re-assigning the same receivables, maintaining adequate records, and promptly reporting disputes or debtor insolvency.

Common mistake: No prohibition on double-pledging receivables — without this covenant, an assignor can assign the same invoice to a second lender, creating competing claims that can only be resolved by costly litigation.

In plain language: Lists the circumstances that constitute a default by the assignor — such as breach of warranty, insolvency, or failure to repurchase — and the assignee's remedies, including acceleration of all outstanding amounts.

Common mistake: Omitting an insolvency-related default trigger — without it, the assignee has no automatic right to accelerate if the assignor files for bankruptcy protection, leaving the assignee as an unsecured creditor.

In plain language: Sets out all fees payable by the assignor — including the discount fee, administration fees, and the interest rate on any outstanding recourse obligation — and the calculation method.

Common mistake: Expressing fees as a flat percentage without specifying the period — '3% fee' on a receivable can mean 3% for 30 days or 3% for 90 days; the difference in effective annual cost is enormous and creates disputes at settlement.

In plain language: Specifies the jurisdiction whose law governs the agreement and the mechanism for resolving disputes between the parties.

Common mistake: Choosing a governing law that does not correspond to where either party or the debtors are located — this can prevent enforcement of the security interest under the applicable personal property or UCC filing rules.

An assignment of accounts receivable with recourse is a financing arrangement in which a business transfers its outstanding invoices to a lender or factor in exchange for an immediate cash advance — typically 70–90% of the invoices' face value. The "with recourse" element means the business retains liability if the customer does not pay: the assignee can demand that the assignor repurchase the unpaid receivable or repay the advance. This structure is common in commercial lending and recourse factoring because it shifts credit risk back to the party with the closest relationship to the debtor.

In a with-recourse assignment, the assignor bears the credit risk — if the debtor fails to pay, the assignor must repurchase the receivable or repay the advance. In a without-recourse assignment, the assignee absorbs the credit risk of debtor non-payment. Without-recourse arrangements typically carry higher discount fees because the assignee is accepting more risk. Businesses with strong receivables quality often prefer with-recourse terms to obtain a higher advance rate or lower fees, while those with weaker debtor credit prefer without-recourse protection.

In most jurisdictions, yes — to protect the assignee's priority against competing creditors and the assignor's bankruptcy trustee, the security interest must be perfected by filing. In the US, this requires a UCC-1 financing statement filed with the assignor's state of formation. In Canada, registration under the applicable provincial PPSA is required. In the UK, a charge over receivables must be registered at Companies House within 21 days of creation. An unregistered assignment gives the assignee only contractual rights, not priority over other secured creditors.

Eligibility criteria vary by lender but typically require that the receivable arises from a completed sale or delivered service, is not more than 60–90 days past due, is not subject to any dispute or counterclaim, is owed by a solvent debtor, and is not concentrated beyond a set percentage of the total portfolio. The assignor warrants these conditions at execution, and breaching them typically triggers an immediate recourse obligation regardless of the standard recourse trigger period.

Under a properly drafted notification assignment, payments received by the assignor on account of assigned receivables are held in constructive trust for the assignee and must be remitted within the period specified in the agreement — typically two business days. Failure to remit constitutes a breach of the agreement and may trigger an event of default. In some jurisdictions, knowingly diverting assigned funds can constitute fraud. This is why prompt debtor notification and a clear trust-receipt covenant are critical.

They are related but not identical. Factoring is a specific commercial product in which a factor purchases receivables at a discount, typically on an ongoing revolving basis, and often manages the collections process directly. An assignment of accounts receivable is the legal mechanism by which the transfer is effected — it can be used in factoring arrangements, asset-based lending facilities, or one-off financing transactions. Factoring agreements almost always contain an assignment clause; not all assignments are factoring arrangements.

Not without the consent of the first assignee — doing so constitutes breach of contract and in most jurisdictions creates a fraudulent conveyance or misrepresentation claim. Priority between competing assignees is governed by the order of filing (UCC, PPSA) or, in some jurisdictions, the order of debtor notification. The assignor covenants in the agreement not to re-assign or double-pledge assigned receivables, and violation is typically an immediate event of default.

Generally, no — most jurisdictions allow assignment of payment obligations without the debtor's consent unless the underlying contract expressly prohibits assignment. However, the debtor must typically be notified before they are obligated to pay the assignee directly. Some commercial contracts contain anti-assignment clauses; assigning a receivable covered by such a clause may breach the underlying contract even if the assignment is otherwise valid. Always review the underlying contract before assigning its receivables.

Tax treatment depends on whether the arrangement is characterized as a true sale or a secured loan. With recourse, tax authorities in many jurisdictions — including the IRS and CRA — may treat the transaction as a financing (loan) rather than a sale, meaning the assignor continues to recognize the receivables on its balance sheet and the advance is treated as borrowing. This affects income recognition, interest deductibility, and GST/VAT treatment. Consult a tax advisor to confirm the correct accounting and tax characterization before execution.

For straightforward domestic assignments between established businesses, a high-quality template reviewed by a commercial lawyer is often sufficient. Legal review is strongly recommended when the advance exceeds $100,000, the assignor has existing secured creditors, the debtors are located in multiple jurisdictions, or the agreement will be used as part of a revolving facility. A lawyer can also confirm the correct filing jurisdiction and ensure the recourse mechanics meet local statutory requirements.