Sell it once, and the cheapest money of all

One receivable, one owner

A receivable is simply money a customer owes you. On 1 April Zohairy signed Lindengate's whole-turnover factoring agreement and released the Selmawy assignment on Steinmark, so that every invoice in the schedule had exactly one owner. That last clause is what this lesson is about. Four months later it was broken by accident.

In July two of Zohairy's customers moved their autumn programmes onto 60-day usance letters of credit. Usance means the bank pays later, not on sight. Between them the two programmes are roughly USD 2,480,000 a year. Selmawy offered to discount the accepted drafts at 6.9%, comfortably under Lindengate's 8.4%, and the finance manager took it.

Nobody meant to do anything wrong. A letter of credit does not feel like a ledger debt. It arrives as a bank instrument with its own documents and its own drama, and course 13.2 is a whole course about it.

But the underlying receivable is still a receivable. Both customers are named on the Lindengate schedule. And a whole-turnover agreement means what it says. Three things follow.

One: it is a breach, and the remedy is bigger than the transaction. A whole-turnover agreement usually makes a diverted receivable an event of default on the entire facility. The exposure is not the USD 2,480,000. It is Lindengate's right to recourse everything.

Two: who actually owns the money is decided by a race nobody knew had started. In English law, priority between two assignees of the same debt is settled by the order in which notice reaches the debtor, not by the order in which the assignments were made. That is the rule in Dearle v Hall, which is nearly two hundred years old and entirely alive. So the second assignee can take priority simply by writing to the buyer first. Zohairy's exposure here is not an accounting adjustment. It is a live dispute between two financiers over money Zohairy has already spent, with Zohairy in the middle of it.

Three: even done correctly, diverting has a price. This is the part that stays invisible until the annual statement.

The minimum commission nobody modelled

Lindengate charges 0.9% of assigned turnover, with a minimum of USD 24,000 a year. That minimum is reached at USD 2,666,667 of assigned turnover. Below that, Zohairy pays the minimum anyway.

The saving is real. It is also 64.3% of what it looked like on the day the decision was taken, because USD 2,580 of it goes straight back to Lindengate as a shortfall charge, on a facility that is now doing less work for the same money.

None of this makes the diversion wrong. It makes it a smaller decision than it appeared. And it is only a legal problem because nobody asked. The correct route costs a week: get Lindengate's written release for each letter-of-credit transaction, list it on the schedule, and check the carve-outs. Most whole-turnover agreements already exclude sales made under a documentary credit. If yours does, the whole episode disappears.

And a clause in your buyer's contract that may not bind you

Some buyers' terms forbid the seller to assign the debt. That clause used to end the conversation. In the United Kingdom, regulations made in 2018 make a ban on assignment ineffective for most business contract receivables, precisely so that smaller suppliers can finance their invoices. So a prohibition in an English-law contract may simply not bite.

Do not act on that from a course. Give the clause to your lawyer and to your financier. Both will want it settled before any money moves. The point worth carrying is narrower and useful: a no-assignment clause is not automatically the end of the matter, and it is worth ten minutes of advice before you accept that an invoice cannot be financed.

The cheapest financing in this entire course

Everything so far has been about buying money. Here is the alternative, priced properly for once.

Steinmark's programme is USD 5,387,400 a year, which is USD 14,760 a day. On 90-day terms paid at 104 days, Zohairy's average outstanding balance on that one customer is USD 1,535,040. Move the terms to 60 days, with the same 14 days of slippage, and the average balance falls to USD 1,092,240.

Funded at 80%, and costed at Zohairy's all-in 9.89% from lesson 2:

The saving is USD 35,034.34 a year, from one negotiation, once, with no fee, no assignment and no premium.

Now the honest half. Steinmark will do it, and it wants 0.65% off the price in exchange. On USD 5,387,400 that is USD 35,018.10.

The two numbers are USD 35,034.34 and USD 35,018.10. A difference of USD 16.24, on a programme of over five million dollars. A payment-term concession is not free money. Your buyer prices it, and prices it well. Anyone who tells you that shortening terms is obviously the answer has not put the buyer's asking price next to the saving.

So what actually decides it

The third row of that table, which no interest-rate comparison can see.

Crossfell's limit on Steinmark is USD 450,000. At 90-day terms, the average balance sitting above the limit — uninsured, whatever anybody believes — is USD 1,085,040. At 60-day terms it is USD 642,240.

Shortening the term bought USD 442,800 of extra cover, out of a limit the insurer had already granted, at no premium, with no application and no underwriting decision. It also lowers Steinmark's share of the assigned ledger, which is the lever lesson 5 spent USD 795,429 of other buyers' invoices trying to pull.

On cost the trade is a coin flip. On risk it is not close.