How Receivables Purchase Agreements Work

Receivables purchase agreements (RPAs) are financing arrangements that can unlock the value of a company's accounts receivable.

Here's how they work: A "Seller" will sell its goods to a customer (1). The customer becomes an "Account Debtor" since it owes the Seller a Debt for those goods (2). A bank or other financier as "Buyer" will then buy that Debt up front (3) through an RPA for an agreed Purchase Amount (4). When the Debt eventually becomes due, payment from the Account Debtor will be directed to the Buyer rather than the Seller (5).

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Why Choose an RPA?

By selling its future flow of receivables, a Seller can better manage its cash flow without the burden of a loan, which may contain more stringent conditions. An RPA structure functions as a sale of assets rather than an increase in indebtedness for a Seller. Thus, a Seller can monetize future payables while ensuring its other assets remain unencumbered. But, the arrangement requires careful planning. Unlike a revolving loan, which can be drawn on at any time, RPA financing depends on there being receivables to sell. Furthermore, Buyers may often charge more for an RPA than a traditional loan.


Additional issues must be considered when contemplating a cross-border, rather than purely domestic, RPA. Below are some key issues that Sellers and Buyers should evaluate when an RPA transaction involves multiple jurisdictions.

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