Accounts Receivable Purchase Agreement Template for the United Arab Emirates

An Accounts Receivable Purchase Agreement is a critical financial document that allows you to convert your outstanding customer invoices into immediate cash by selling them to financial institutions or factoring companies. Under UAE law, this agreement must comply with Federal Law No. 5 of 1985 (Civil Code) regarding assignment of rights and Federal Law No. 18 of 1993 (Commercial Code) governing commercial transactions.

When do you need this document?

You need this agreement when your business requires immediate working capital but has significant amounts tied up in unpaid invoices. Manufacturing companies often use this arrangement when they have large orders with extended payment terms but need cash for raw materials and operations. Service providers frequently utilize receivables purchase agreements during seasonal fluctuations or when expanding operations require immediate funding. Technology companies may need this document when waiting for milestone payments from long-term contracts. Additionally, any business experiencing rapid growth that outpaces its cash flow can benefit from converting receivables to immediate liquidity.

Key legal considerations

The agreement must clearly define eligible receivables, including creditworthiness criteria and exclusions for disputed or aged invoices. You should carefully review the purchase price calculation, which typically involves a discount rate that affects your overall cost of capital. Risk allocation clauses determine whether you retain liability for non-payment or if the purchaser assumes full credit risk. Notification requirements specify whether your customers must be informed of the receivables sale, which can impact business relationships. Collection procedures and dispute resolution mechanisms must be established to handle payment issues. The agreement should include representations and warranties regarding the validity and enforceability of the receivables being sold.

Legal requirements in United Arab Emirates

Under UAE Federal Law No. 5 of 1985, Articles 1106-1132 specifically govern the assignment of rights, requiring proper notification procedures and documentation. The Commercial Code mandates that commercial transactions involving receivables must be conducted through licensed financial institutions or authorized entities. If your purchaser is a UAE bank or financial institution, the agreement must comply with UAE Federal Law No. 14 of 2018 (Central Bank Law) regarding financing operations. For companies operating in free zones, additional compliance with free zone regulations may be required. The agreement must be drafted in Arabic or accompanied by a certified Arabic translation for enforceability in UAE courts. Islamic finance principles may need to be incorporated if either party requires Sharia-compliant structures, avoiding interest-based arrangements in favor of profit-sharing or purchase-based financing models.