Repurchase of receivables

Debt collection can take place in several ways. The client can recover receivables in their own name which is not the easiest way without legal education or they can be represented by a lawyer who will help them with recovery but such legal assistance can be an expensive item in the accounting while the lawyer is not motivated to achieve real recovery of client receivables. However, in order not to offend lawyers, in most cases, they will represent their client conscientiously. However, it is necessary to understand that the more conscientious work will be done, the longer it will naturally take to prepare for representation. And of course, it will be reflected in the length of invoiced hours.

Most entrepreneurs do not have time to deal with debtors, as they have to focus on their business activities. It also does not help their good reputation if the entrepreneur recovers receivables directly from their customers. Exactly for these entrepreneurs, there is the possibility of repurchasing receivables.

The repurchase of receivables is the preferred option, as the assignee (the individual who wants to sell their receivable) will no longer have any legal relationship with such receivables, and thus, they will not be seen by the debtor as the one who is recovering claims from him or her.

There are two ways to repurchase receivables. Both methods have their positives and negatives. The first way is to repurchase receivables for immediate funds. This procedure is very fast, efficient, and it is not linked to whether the debtor actually pays their claim. Let’s say you have receivables worth 100,000 Eur and you sell it for an immediate profit of 30,000 Eur. In this case, you will receive the finances immediately but as indicated in the example, the amount for the repurchase of receivables will be disproportionately low compared to its original value. However, such remuneration is deductible from the risk in the case of failure to recover receivables from the debtor. In such a case, the entire risk is borne by the person or entity to whom the claim is transferred (e.g. our company). It is possible and not uncommon in practice for some claims not to be recovered, especially with higher receivables; this risk is higher as debtors are represented by lawyers and use all means to avoid paying their receivables.

For the client, it is much more beneficial to have receivables purchased with a deferred maturity linked to the actual recovery of receivables from the debtor. With this option, the client has a higher reward. In the case of a receivable in the amount of say 100 000 Eur, the client can get up to 85 % of its original value which is in this case 85 000 Eur. This is incomparably more than in the case of repurchase of receivables for immediate funds, where the value of the repurchase can be somewhere at the level of 30 %.

Another advantage of repurchasing receivables for remuneration linked to the actual recovery of receivables is the fact that our company bears the costs of proceedings as well as the remuneration for representation by a lawyer, who, if necessary, will represent us. These items can sometimes reach half of the value of a receivable and in rare cases may even exceed them (especially for smaller receivables). However, the client is protected from stress as they know in advance that the recovery of receivables in the event of failure will not cost them additional funds, as well as the inconvenience associated with communication with the debtor.

It is up to you to choose whether to be represented by a lawyer whose services will be invoiced by the hour or to secure the purchase of these claims by our company.