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An Accounts Receivable Assignment Agreement is a specialized commercial contract that allows you to transfer ownership of your accounts receivable to another party, typically a financial institution or factoring company. Under Canadian law, this document creates a legal framework for selling your outstanding invoices and receivables in exchange for immediate payment, helping you improve cash flow and reduce collection burdens.

When do you need this document?

You need this agreement when your business requires immediate cash flow from outstanding receivables rather than waiting for customer payments. This is particularly common in factoring arrangements where financial institutions purchase your receivables at a discount, providing instant liquidity. You'll also need this document for securitization transactions, where receivables are pooled and sold to investors, or when using receivables as collateral for financing. Manufacturing companies often use these agreements to convert slow-paying B2B invoices into immediate working capital, while service providers use them to bridge cash flow gaps between project completion and payment.

Key legal considerations

The assignment must clearly identify all parties involved, including the assignor, assignee, and any guarantors or collection agents. Your agreement must include comprehensive representations about the validity and collectibility of the receivables being transferred, as you'll typically remain liable if the receivables prove uncollectible. Notice requirements are critical - you must determine whether account debtors need to be notified of the assignment and establish proper collection procedures. The purchase price calculation method, any recourse provisions, and ongoing servicing obligations must be clearly defined. Consider including provisions for disputes, setoffs by account debtors, and procedures for handling returns or credits that might affect the receivables' value.

Legal requirements in Canada

Your Accounts Receivable Assignment Agreement must comply with provincial Personal Property Security Act (PPSA) requirements, which vary by province but generally require proper registration to perfect your security interest and establish priority over competing claims. You must register the assignment in the appropriate provincial personal property registry within the specified timeframe, typically within a specific number of days after the assignment. Federal legislation also applies, including the Bills of Exchange Act if any receivables involve negotiable instruments, and the Bankruptcy and Insolvency Act provisions that affect assignee rights in insolvency situations. Tax implications under the Income Tax Act must be considered, particularly regarding withholding requirements and the tax treatment of assigned receivables. Provincial Sale of Goods Act provisions may affect the underlying contracts that created the receivables, especially regarding warranty and liability issues that could impact collectibility.