The assignment of receivables is a credit contract by which the borrower rejects claims on the lender. In exchange for this assignment of receivables, the borrower receives a loan for a percentage of the receivables. This percentage can be as high as 100%. The borrower pays interest and service charges for the loan and the receivables transferred will be used as collateral. In other words, if the borrower does not pre-set the loan, the agreement allows the lender to recover the receivables sold. The assignment of receivables is generally more expensive than other forms of borrowing. Companies that use it are often unable to obtain cheaper options. Sometimes it is used by companies that grow quickly or do not have enough money to finance their business. When the debts are transferred, the borrower retains ownership of the receivables sold and therefore retains the risk that certain receivables will not be repaid. In this case, the lender can request payment directly from the borrower.
This agreement is called „assignment of claims in the event of an appeal.“ The assignment of receivables should not be confused with collateral or debt financing.