United States: Key Issues For Sellers To Consider When Selling Trade Receivables On Electronic Platforms

Online receivables auction platforms are growing in number and prevalence, spurred by commercial and regulatory developments in the commodities and banking industries. This briefing looks at some of the high-level issues that industry players should consider when negotiating an agreement to sell trade receivables on these digital platforms.

Over the past year, there has been an increase in off-balance sheet transactions pursued by participants in the commodities industry, including receivables discounting facilities, securitizations and repos. This increase has been driven by a variety of factors, including the need for additional working capital as a result of increased commodity prices, a reduction in committed capital provided by certain banks and regulatory costs imposed on traditional forms of lending. A similar trend has occurred across a wide range of other industries. As a result, several online receivables platforms ("Receivables Platforms") have emerged to meet this increased demand and provide a liquid marketplace for companies to sell their trade receivables.

Receivables Platforms are administered by platform sponsors ("Platform Sponsors") and serve as electronic marketplaces that provide a venue to connect sellers of accounts receivable (the "Sellers") to potential buyers (the "Buyers"), including banks, funds and corporations. Sellers access the Receivables Platforms by negotiating an agreement with the applicable Platform Sponsor (the "Seller Agreement"). The Seller Agreement dictates the terms pursuant to which Sellers may offer accounts receivable for a live auction open to the bids of potential Buyers on the Receivables Platform. The Platform Sponsor will then select the winning bid pursuant to the terms of the Receivables Platform's general terms and conditions, and the Seller can expect to receive the purchase price for the accounts receivable within one to two business days of the sale.

As the prevalence of Receivables Platforms continues to expand, we thought it would be useful to highlight several high-level issues Sellers should consider when negotiating a Seller Agreement:

  1. Balance the need for consistency between the Seller Agreement and the Seller's other financing arrangements with liquidity on the Receivables Platform – Sellers must balance their desire to revise the Receivable Platform's template Seller Agreement to conform with the representations, covenants and events of default in the Seller's other financing arrangements with their need for a liquid auction process on the Receivables Platform. While Platform Sponsors are typically amenable to negotiating their template Seller Agreements, Platform Sponsors seek to maintain uniformity in their documentation to boost the liquidity of their auctions. Potential Buyers are given the opportunity to review a redlined Seller Agreement showing each revision a Seller has negotiated into the template. A redline that indicates significant, material revisions may bear a chilling effect on bidders who are unwilling to comb through numerous alterations to evaluate their full impact. In other words, Buyers may avoid auctions with highly customized documentation.
  2. Protect confidential information – Unlike a bilateral factoring or discounting arrangement, Receivables Platforms create a marketplace for numerous bidders to review and consider receivables purchases. The Seller should consider whether it is comfortable with the pool of Buyers who may purchase its accounts receivable on any Receivables Platform, and determine whether any actions may be taken to mitigate the chances that competitors can gain access to the Seller's confidential information by participating in an auction on the Receivables Platform. Some Receivables Platforms provide the Seller with an option to elect for a "private auction," whereby the Seller can select the pool of potential Buyers who may participate in the auction, thus excluding any competitors that may have joined the Receivables Platform as a Buyer. This option affords the Seller enhanced control over who may access its information.
  3. Ensure the Seller Agreement complies with the Seller's intercreditor agreement – The Platform Sponsor will often act as collateral agent for the auction Buyers. If the Seller has an existing intercreditor agreement with its other secured creditors, the Platform Sponsor may be required to join as a party to such existing intercreditor agreement. The Seller should be aware that the Platform Sponsor differs from the typical party that joins an intercreditor agreement in that the Seller has no ongoing commercial relationship with the Platform Sponsor. This lack of familiarity and commercial relationship may make it more difficult to deal with the Platform Sponsor, and may increase delays if consents and waivers to the intercreditor agreement become necessary.
  4. Weigh the rights the Seller Agreement provides to Buyers – Each Receivables Platform's template Seller Agreement typically permits each Buyer, in addition to the Platform Sponsor as collateral agent, to enforce its rights with respect to the receivables it purchases. This makes it more difficult for the Seller to control the interaction of third parties with the Seller's customers, because several different Buyers may have purchased accounts receivable owed by any given customer. The Seller should consider the potential benefit of negotiating restrictions with respect to a Buyer's ability to directly contact the account debtors of the sold receivables such Buyer has purchased.
  5. Ensure that the collection arrangement is acceptable to the Seller – The Seller and Platform Sponsor can structure the Seller Agreement so that collections on the accounts receivable are processed in one of the following ways: (a) account debtors pay into a separate blocked account in the Seller's name that is subject to a deposit account control agreement with a shifting notice mechanism that transfers control over the account to the Buyer in the event of an event of default, (b) account debtors pay into the Seller's existing operating accounts, and the Seller agrees to transfer collections within a commercially reasonable period of time (typically within two business days) to the Platform Sponsor's account, or (c) account debtors pay directly to an account held in the name of the Platform Sponsor or the applicable Buyer. When a Seller signs up to a Receivables Platform, it should consider the extent to which it is willing and able to change its current collection mechanics. Option (b) described above allows a Seller to maintain its existing collections mechanics, while the other two options require the negotiation of a deposit account control agreement and/or the Seller to direct its customers to make payments to a different account.
  6. Limit the scope of permissible assignment by Buyers – Sellers may also consider whether they want to restrict a Buyer's ability to further sell and assign the accounts receivable to another third party. One way to accomplish this is to negotiate the Seller Agreement such that a Buyer who purchases the receivables via a private auction will only be allowed to sell or assign such receivables to the other member Buyers who participated in the original private auction. In making this determination, the Seller should consider the impact that such restrictions may have on the true sale analysis of its accounts receivable on the Receivables Platform, as a restriction on assignability of receivables is typically a factor that weighs against a true sale characterization.
  7. Limit the scope of a Buyer's communication with the Seller – In addition to the concern that a Buyer may contact a Seller's customers, the Seller should also consider to what extent the platform documents permit the Buyers to contact the Seller directly. A Seller may want to ensure that it interacts exclusively with the Platform Sponsor (on behalf of the Buyers), except in the case of certain limited circumstances, such as following an insolvency event with respect to the Platform Sponsor or a breach of the Platform Sponsor's obligations to the Buyer under the applicable platform agreements.
  8. Review underlying documents between the Platform Sponsor and the Buyers – The Seller should review the underlying documents between the Platform Sponsor and the Buyers to ensure they are consistent with the Seller Agreement. Since the sale of receivables via the Receivables Platform is often a back-to-back arrangement, there is no contractual privity between the Seller and the applicable Buyer, which creates potential for uncertainty and ambiguity as to which terms control if there is a conflict in the documentation.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.