Glossary

Purchase of future receivables

The legal form of many advances.

The legal form under which many advances are written: the funder buys a specified amount of the business’s future receivables at a discount, rather than lending money. The distinction affects whether interest-rate and lending rules apply, and courts and regulators look at substance (for example, whether repayment is genuinely contingent on receivables and whether reconciliation exists) rather than labels. Treatment varies by state.

How it appears in a contract

The agreement will describe a sale of receivables, a purchased amount, and the funder’s right to a share of receipts; a well-drafted one includes reconciliation and states that repayment depends on receivables.

Worked example

Two agreements can produce identical payments; one with a real reconciliation clause and no fixed term is closer to a purchase, one with fixed daily debits and a fixed term is closer to a loan in substance.

Illustrative figures on stated assumptions; not quotes.

What to ask

• Is repayment genuinely contingent on my receivables?
• What does reconciliation require and how fast does it take effect?
• Which state’s law governs, and how does it treat this structure?

Related terms

Merchant cash advance · Business purpose · Confession of judgment · all terms