In the next article on receivables, we will look at what an assignment of receivables means, how accession to debt works or how to prepare an assignment agreement. This information will come in handy if someone has not paid you an invoice or otherwise owes you money, but you would rather leave the collection of your money to someone else.
Assignment of a debt means that the creditor transfers its right to the debt to another person – the assignee.
The assignee can then collect the debt instead of the original creditor.
The debtor’s consent is not required.
The debtor must be informed of the assignment.
The accessories of the claim are transferred with the claim.
If you need to prepare an assignment agreement, do not hesitate to contact us.
Receivables can be defined as the rights of creditors to the performance of a certain obligation by debtors. This obligation may take the form of financial performance, delivery of goods or services. The more debts someone has, the more difficult it can be for them to manage them, especially if the debtors do not pay and they need to proceed to recovery. This often applies, for example, to large companies and corporations, which then prefer to assign their debts to someone else.
An assignment of a receivable is sometimes also called an assignment. It is a legal institution through which creditors or assignors can transfer the right to a claim to a third party or assignee. This act transfers all the rights attached to the claim to the assignee.
This is most often an assignment for consideration. Receivables are assigned when the creditor does not want to or cannot, for various reasons, collect the receivable himself.
In order not to get lost in the terms at the outset, we will again give you an example. Katherine (creditor, assignor) sells a coat (goods) to Helena (debtor), who does not pay her the invoice for the goods. This gives rise to a debt for Katherine.
However, Katerina does not want to deal with its collection and further delays, so she decides to assign this claim to Honza (assignee). Simply put, she sells this claim to him, usually for the same price as the coat or slightly less. She has thus got her money and does not have to deal with the claim any further.
Honza owns a debt collection company, so he can deal with the claim more easily. So from now on he has all the rights to the debt and can collect it from Helena.
In practice, we are mainly contacted about assignment of receivables by entrepreneurs who have a large number of unpaid invoices. Instead of collecting the debts themselves over a long period of time, they decide to transfer the debt to another company – for example, a collection agency or an investor who specialises in debt collection.
Companies also choose a similar solution when they need to raise cash quickly. Selling the receivable usually means that they only get a part of the value of the receivable, but they avoid the uncertainty and costs associated with recovery.
If you no longer want to waste your time or nerves in recovering your claim and have decided to assign it to a third party, we will be happy to prepare an assignment agreement for you. Thanks to a well-drafted contract, you will be sure that the assignor will actually take over the claim with all its obligations, without any loss to you.
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Creditors most often decide to assign their claim when they no longer want to or cannot collect the claim themselves for various reasons. This often occurs in two main situations:
the creditor needs to raise money quickly,
the company wants to reduce the administration associated with debt recovery.
A creditor needs to quickly collect money owed to them and therefore decides to assign the debt to an assignee. The latter will often buy it back at a lower price than its face value (the amount of the original debt), but the funds obtained, at least in a certain amount, are more important to the creditor at the time. This procedure is used, for example, by factoring companies that specialise in debt purchase.
In order to simplify their own processes, large corporations or banks that manage a large number of receivables also use assignment of receivables. If they choose to assign them to a specialist debt recovery entity, they can concentrate on their other activities.
More or less any debt that is legally enforceable can be assigned. However, most often these are claims that arise from commercial transactions or civil relationships, such as the delivery of goods or the provision of services and loans.
There are types of claims that cannot be assigned. These are those of a personal nature, such as claims for maintenance, claims arising out of an employment relationship and the like.
The assignee is the person or entity to whom the claim is assigned. Often these are so-called factoring companies that buy short-term receivables for a certain commission and then deal with its recovery themselves, but it can also be an individual.
The main right and obligation of the assignor is to recover the debt from the debtor according to the terms of the contract between the original creditor and the debtor.
It should also be noted that the assignment of the claim does not affect the debtor itself in any way. He is still legally obliged to fulfil his debt, but not to the original creditor but to the assignor.
At the same time, it is important to know that one of the key aspects of the assignment of the claim is that the debtor does not have to agree to the assignment, it is sufficient that he is informed of it.
A common mistake is that creditors do not inform the debtor of the assignment at all. As long as the debtor does not know about the change of creditor, he can pay his debt to the original creditor and the obligation will be extinguished. This can make the situation significantly more difficult for the new creditor.
It is therefore always advisable to inform the debtor of the assignment of the claim without undue delay.
Factoring companies are firms that deal with the purchase of short-term receivables. They usually take a commission of 0.8% to 3% of the receivable to cover their costs and the risk of default by the debtor.
The assignment of a claim can take various forms. Sometimes the receivable is assigned free of charge, for example in the context of internal transfers within the company or between related parties. At other times, the creditor sells the receivable and the assignor must pay the creditor a certain amount in return for taking over the right to recover the receivable from the debtor.
If you want to get everything right, have an attorney prepare a good assignment agreement. This will avoid any inconvenience caused by improper process and handling of the assignment.
The assignment agreement is a legal document that formally sets out the terms and conditions under which the claim is transferred from the assignor to the assignee. This agreement is only valid if it contains several essential matters.
Tip: Don’t want to assign your claim, but are wondering how you can collect it yourself? You can read about how to recover a debt in our article.
From a legal point of view, accession to debt is a completely different institution. Whereas in an assignment the assignee takes over all rights from the assignor, in an accession to debt the third party assumes the responsibility for the performance of the debt.
Going back to our example from the beginning, in the case of an assignment of debt, Helena will take Kamil to help her pay. This means that in addition to the original debtor (Helena), a new person (Kamil) is created who also has the obligation to fulfil the obligation (repay).
The accession to the debt most often takes place when the original debtor becomes insolvent and the creditor wants to be sure that his claim will be repaid. In practice, apart from individuals, this happens, for example, in a corporate environment where a parent company accedes to the debts of its subsidiary.
In contrast to an assignment of debt, the accession to the debt takes place with the active participation of the debtor and the creditor. The creditor enters into a contract with a third party (Kamil), on the basis of which this person becomes a co-obligor. The creditor thus has the advantage of having more than one entity from which it can demand payment.
Although assignment of a claim is a relatively simple legal institution, in practice there may be situations where it is worthwhile to contact a lawyer. Typically, this is the case, for example, when:
the claim is secured (for example, by a pledge),
there are multiple debtors,
the claim is the subject of litigation,
or multiple claims need to be transferred at once.
We can help you prepare the assignment agreement so that it is legally secure and you avoid future disputes.
The assignment of debt process is often used when a creditor does not want to or cannot collect a debt themselves. Assignment of receivables is common in the business environment, where factoring companies are often used to manage receivables efficiently. Do not underestimate the help of an attorney when drafting an assignment of receivables agreement. A lawyer will ensure that the contract correctly specifies the parties, accurately describes the subject matter of the contract (the receivable) and clearly defines the terms of the assignment. A properly drafted agreement will protect you as a creditor from any risks associated with an improper assignment process.
You must be notified of the change of creditor by the original creditor or the new creditor (assignee). Until you learn of the assignment, you can pay your debt to the original creditor.
No. The debtor’s consent is not required under the Civil Code. The debtor only has to respect the change of creditor and pay the new creditor after being informed of the assignment.
The claim itself and its accessories, such as interest, default interest, contractual penalties or collateral, are transferred to the assignee.
The Civil Code does not generally require a written form. In practice, however, a written contract is almost always recommended because it makes it easier to prove the transfer of a claim.
The assignment of the claim changes the creditor. On the other hand, when a debt is assumed, the debtor changes and assumes the obligation to repay the debt.
Yes. You can also assign a claim that is overdue or being collected. In practice, unpaid invoices or other debts are often sold in this way.
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