The transfer of credit is an operation from which organizations benefit regularly, in order not to paralyze their current assets and ensure the proper functioning of their activity.
It is an operation considered within the branch of credits for companies, whereby any document, regardless of its format (receipt, invoice, letters … etc) that appears within the asset can be anticipated through a loan assignment contract.
How does credit transfer work?
Imagine that a company has in its asset a receipt or invoice pending payment for a sale of a product or the provision of a particular service. This invoice or receipt expires within 90 days, but the company needs liquidity immediately.
The smartest thing would be to go to a financial institution in order to advance the amount of this invoice or receipt with the corresponding commission and interest rate. In this way the company would charge immediately.
This is what is known as the transfer of credit, an operation in which there are two participants, the transferor, which would be the company that has the right of collection, and the assignee, which would be the financial entity that advances the amount and therefore becomes the new creditor of the receipt or invoice.
Within the loan assignment two modalities are considered:
Credit transfer with or without recourse
The loan assignment can be:
- With notification: this means that at the moment in which the transferor sells his right of collection to the assignee, both agree to notify the debtor about the change of ownership of the creditor.
- Without notification: this occurs when the credit operation is carried out without the need to inform the debtor about the transfer of the right of collection.
In addition the transfer of credit can also be done:
- No recourse
If it is decided to transfer credit without recourse, this means that if for example the transferor has carried out the operation with a financial entity and at the time of collection, the debtor declares himself insolvent and does not face the debt, the assignor It is exempt from responding to this default and the financial entity can go exclusively against the debtor
- With appeal
In this case it would be the opposite of the previous example. In the situation that the debtor does not face his debt at the time of expiration, the transferor must respond to the latter’s insolvency before the financial entity.
Credit Assignment Agreement
The loan assignment contract is the legal document through which the transaction between the transferor and the assignee is materialized.
This formalization is usually done before a notary and the contract shows all the complete data of the transferor and assignee, as well as the amount for which the collection right is assigned.
On the other hand, the assignee will receive from the transferor all signed credit documents.
In this contract, the assignor responds to the legitimacy of the credit against the assignee and also has to specify whether his liability to the debt is joint and several with the debtor, that is, if it is done with or without recourse.