As a method of raising capital or collecting cash, a company may sell their customer's debt owed to them by transferring their Accounts Receivable to another party in exchange for a payment of some kind. The first paragraph of a Receivables Transfer Agreement should define the accounts receivable that will be assigned. Typically more than one account will be assigned, and if there are several, the accounts should be listed on an attachment and referred to here. Be sure to “incorporate by reference” the attachment with the list of accounts. Also be sure to list all relevant information about the account or accounts, such as the company's name, the date the account was opened, and the outstanding balance.

The next section should provide the language of the transfer. Here, it is critical that the transferor “certify” that the accounts and just, due and collectable. For instance, this paragraph could read something like:

“For Value Received, all right, title, and interest in and to the accounts receivable (”the Accounts”) are hereby assigned, sold, and transferred by the Transferor to the Transferee. The Transferor certifies that said accounts are just and due and that payment has not been received for those accounts or any part of them.”

Naturally, the transferee must agree to pay the transferor a certain amount of money in exchange for receiving the right to collect on these accounts receivable. This payment could be a lump sum cash payment, stock transfer or other method, depending on the nature of the transaction. In addition, in order to limit its liability, the transferee will want the transferor to “indemnify and hold harmless” the transferee from any and all claims arising from the accounts receivable or the underlying contracts between the transferor and the customer. The transferor must also agree to furnish the transferee with all information required and necessary for its collection efforts. The transferor must agree to notify the customer of the transfer agreement by and between transferor and transferee and instruct all customers to pay transferee any payments on the accounts that are made.

Lastly, important consideration should be paid to the assignment provision, which may or may not provide the parties with the right to assign or transfer, directly or indirectly its rights and obligations under the agreement. For various reasons, it may be wise for both parties to require that they receive written permission from the other party before the other party transfers or assigns the agreement to a third party. This isn't really an issue for the transferor, who won't be assigning the agreement because they have already received their payment up front. However, the transferee may wish to retain the right to transfer the accounts receivable to a third-party, and the transferor may want to retain the right to approve such a transfer.

Finally, the typical general provisions should be included, explaining issues such as notice, assignment, legal remedies, waiver, severability, governing law, modifications and amendments to the Receivables Transfer Agreement.