Invoice financing helps TSL (Transport, Shipping, and Logistics) businesses improve their cash flow. However, not every invoice can be financed this way, especially if it includes a prohibition of assignment clause. While financing invoices with such a clause is possible, it is more complex. Here’s a breakdown of what a prohibition of assignment is, how it affects invoice financing, and what alternative solutions are available for businesses looking to accelerate payments.
A prohibition of assignment is a contractual clause that prevents the transfer of rights under a contract, including the right to receivables, to a third party without the other party’s consent. In the context of invoices, this means the creditor cannot transfer their payment rights to a factor or other financing entity without the debtor’s approval. Companies use this clause to maintain greater control over their obligations and business relationships.
This prohibition makes traditional invoice financing, where the factor takes over the rights to the receivables, impossible. However, businesses can still finance their invoices in other ways. At Transcash, for instance, we offer a loan service to clients facing a prohibition of assignment.
Transcash’s loan service is designed for businesses whose contracts include a prohibition of assignment clause. The loan is provided for the amount on the invoice, with a repayment term matching the invoice’s payment deadline. This allows the business to receive quick payment on a schedule that suits them, without being hindered by the contract’s restrictions, since assignment of receivables does not apply to this type of service.
While this loan service is generally more expensive than factoring, at Transcash we recommend first attempting to negotiate this clause with your client. Consent for assignment can sometimes be granted on a one-time basis for a specific invoice and factor. This is often enough to secure approval, as clients are usually concerned about their debts being transferred to institutions with questionable reputations.
For businesses seeking alternatives to invoice financing, a business overdraft loan is another option. This provides quick access to cash for covering ongoing obligations. The details of such a service should be discussed with the specific loan provider, keeping in mind that the credit limit will depend on the company’s creditworthiness.
Financing invoices with a prohibition of assignment allows for quick funding without informing the debtor about the assignment of receivables. This is particularly beneficial when the debtor might refuse assignment or when the business wants to avoid complications in its relationships with clients.
However, this approach comes with certain risks and limitations. The business bears the full risk of the debtor’s insolvency, which could lead to financial problems if the client fails to meet their obligations. Additionally, the costs of such financing may be higher than traditional factoring due to the increased risk for the financing institution.
A prohibition of assignment in a contract doesn’t close the door to quick financing. If your relationship with the client is good, it’s worth starting by negotiating this clause, which can open the way to traditional factoring. Otherwise, other financing services are available that will help you achieve your goal of quick payment and maintaining cash flow.
