Accounts Receivable Purchase Agreement Template for the United States

An Accounts Receivable Purchase Agreement is a legal contract that allows you to sell your outstanding invoices and receivables to a third party, typically a factor or financial institution, in exchange for immediate cash. This arrangement provides you with working capital without taking on traditional debt, making it an attractive financing option for businesses with cash flow challenges or growth opportunities.

When do you need this document?

You'll need this agreement when your business has outstanding invoices but requires immediate cash flow to operate or expand. Manufacturing companies often use these agreements when they have large orders with extended payment terms but need funds to purchase raw materials. Service businesses with net-30 or net-60 payment terms frequently utilize factoring to bridge the gap between service delivery and payment receipt. Startups and growing companies also rely on receivables purchase agreements when traditional bank loans are difficult to obtain or when they want to avoid taking on additional debt that appears on their balance sheet.

Key legal considerations

The agreement must clearly establish whether the transaction constitutes a true sale or a secured loan, as this distinction affects accounting treatment and bankruptcy implications. You need to provide comprehensive representations and warranties about the quality and collectibility of your receivables, including confirmation that they're free from liens and disputes. The purchase price mechanism should be clearly defined, typically involving an advance rate of 70-90% of receivable value, with the remainder paid after collection minus fees. Consider including provisions for recourse versus non-recourse arrangements, which determine whether you remain liable if customers fail to pay. The agreement should also address collection procedures, notification requirements to your customers, and termination conditions.

Legal requirements in United States

United States law primarily governs these agreements through the Uniform Commercial Code, particularly Article 9 covering secured transactions and Article 2 for sales of goods. You must comply with UCC filing requirements if the arrangement is deemed a secured transaction rather than a true sale. The Federal Assignment of Claims Act applies when selling receivables owed by the federal government, requiring specific notice and consent procedures. If your receivables involve consumer accounts, you must ensure compliance with the Truth in Lending Act for transparent credit terms and the Fair Debt Collection Practices Act for collection activities. The Fair Credit Reporting Act may apply if the factor reports payment information to credit bureaus. State variations of the UCC can impose additional requirements, so you should verify local law compliance in your jurisdiction. Proper documentation and legal structure are essential to achieve the desired accounting and tax treatment while protecting both parties' interests.