The entrepreneurs that order the outsourcing of receivables on a standard basis choose the debt collection or the sale of the debt. The sale is particularly popular as it means fast inflow of cash, allows for defrosting of the capital immediately – these are often significant amounts which rescue the disturbed financial liquidity of the company. We have already been writing about: When to sell the debt in order not to lose in our Guide.
In order to avoid unpleasant surprises, it is worth knowing that there are special cases, in which performance of such transaction will be excluded. Unfortunately, the creditors learn about it too late, i.e. upon presentation of the document confirming the claim to the debt collection company in order to effect the sale.
Then, it often turns out that in the agreement there is a no assignment clause. In such situation, sale of the receivable is impossible and for the creditor it means loss of the possibility to administer the receivables. In case when the amount of the claim is significant, it may be the reason for occurrence of financial jams in the enterprise.
The creditors accept such a clause, often not being aware of its consequences or when they have no choice, because e.g. the customer is the only trade partner and consequently may dictate the terms & conditions of cooperation.
The common practice of introduction of the no assignment clause to the trade agreements does not have to but can be a signal that our business partner takes into account the possibility of deferring of the payment or even intends to defer it. The entrepreneur that accepts this condition should know that in the future, in case of occurrence of a claim, they will be deprived from the possibility to obtain financing of the receivables from other sources.
So if we are not in a situation in which we have no choice, we should analyse whether we will be able to wait until the debtor decides to pay the receivable. If not, we should remember that we do not always have to agree to introduction of the no assignment clause to the agreement.
Securing of the transaction with the agreement is advisable. Accurately specified terms & conditions of cooperation and payment facilitate settlement of a potential dispute and pursuing of claims, which we have been writing about in the text: How should a good trade agreement be written? We should always carefully analyse all provisions as well as general agreement terms & conditions, which may contain the no assignment clause. If we decide that individual provisions are not used for protection of our interests, we should not sign such agreement.
Published on: 14 August 2014