Liquidity management

What happens when receivables are sold?

Also known as "factoring" or "factorization", this is when a company sells its receivables directly after invoicing in exchange for immediate payment of the outstanding amount. The claim is fully assigned to a new creditor within the framework of a sales contract. The sale is considered completed when ownership of the respective receivable changes hands. The seller of the receivable is liable for its validity but not for its collectability. This means that the new owner generally assumes the default risk along with the purchase.

What are NPL receivables?

Receivables are often sold as non-performing loan packages or NPLs for short. Sometimes called "defaulting receivables", NPLs are unsecured receivables and may include for example receivables with long payment periods. When sold, the new creditor assumes ownership of the receivable amount minus a small fee. This process increases the liquidity of the previous creditor as well as improves their balance sheets since there is no need to wait on the debtor to make payment at a later date. Sales of receivables like this are usually performed by collection agencies.

What is factoring?

Factoring or factorization is when a company sells its receivables to a factoring company directly after invoicing. This strategy avoids the risk of default and makes it no longer necessary to monitor outstanding receivables. Factoring also lends the company immediate liquidity, which can be used to take advantage of supplier discounts or make investments of its own, to name but a few examples.