What is trade receivables finance?

In trade receivables finance, a receivable purchase agreement is signed between a company and either a bank or specialist finance provider. This enables a company to access financing based on its accounts receivable.

1. Sale of goods or services and issuance of invoices (the receivables)

Receivables are created when a business accepts an order for its goods or services, dispatches the goods or performs the services, and issues an invoice requesting payment. They are due to receive payment, hence receivables.

2. Sell receivable and receive funding

The receivable is an asset that has monetary value. It will be settled when the customer makes the required payment at the invoice’s maturity date. Using receivables finance, the business can choose to sell the receivable to receive payment before this date.

3. Collect payments

On maturity of the invoice, the customer then makes payment either to the supplier of the goods/services or to the funder. This depends on the terms of the receivable finance programme. Either way, the payment received, at the term of the invoice, “extinguishes” the outstanding receivable and closes the invoice.

4. Transfer payment collections

The funder will receive the customer payment, directly or indirectly, as the new owner of the invoice.

For large companies, a trade receivables finance programme can be a great way of accessing capital without adding debt. Through the sale of your receivables, you can create a flexible, global facility that can be adapted as your business grows. This opens up many benefits, the top four are listed below: