Factoring Companies Guidebook
Ban on Assignment
A clause within the Debtors terms of sale, which specifically bans the assignment of the benefits or proceeds of the sale, thereby refusing to accept the assignment of the invoice.
Concerns
The 'contract' is in place before the debt arises and therefore will take precedent over the Client's legal right to assign the debt to us, negating our right to the proceeds of the Debt.
Identification
Review customer terms of sale, obtaining copies for the client file.
Treatment
Where an effective ban on assignment exists, all of the debt due from that customer should be reserved unless a suitable waiver is obtained from the debtor. This limitation applies to both Disclosed and Confidential facilities.
N.B. Where concentration is low there may be occasions where a waiver is not required and credit will take a commercial view. However this aspect would have to be continually monitored throughout the relationship.
Care must be taken in a 'Gone Concern' situation, or where the client may potentially cease to trade, as it may be necessary to rely on the appointment of a Book Debt receiver to recover the proceeds of the debt. Such appointment will result in additional costs of recovery for us, which should be taken into account in any funding decision. It is not however guaranteed that any Receiver, despite the ban, will look favourably on the debt being assigned to us and may retain the funds for other creditors.
Examples of Ban on Assignment Terms & Conditions
"The Seller shall not assign or sub-contract the Purchase Order or any part thereof or any money to become due hereunder without the prior written consent of the Purchaser. Any such permitted assignment or sub-contracting shall not relieve the Seller of any of its obligations under the Purchase Order."
