Assignment of receivables

The assignment of receivables is the process by which a company transfers its customer invoices (its receivables) to a third party, such as a factoring company or a bank. The third party then becomes the party to whom the customer owes payment.

Example

A company assigns an invoice for €50,000 to a factoring company. The customer is notified and now pays the factoring company when the invoice is due.

Why It’s Important

This is the legal mechanism behind factoring and certain types of bank financing. It allows invoices to be converted into cash immediately.

For more information: The Credit Management Guide.

See also: factoring, factor, receivable.