Buyer: the entity (finance provider’s customer) that enters into a corporate payment undertaking with a finance provider, which facilitates access to discounted early payments by the finance provider for the benefit of its supply chain. The buyer approves the invoices and submits the details of the approved invoices and amounts to the finance provider together with a corporate payment undertaking to make payment of the approved amount to the finance provider at the confirmed invoice due date.

Seller: the entity selling goods or services to the buyer which agrees or acknowledges interest in arrangements for receiving optional early payments at a discount and may agree with the finance provider that the finance provider and the buyer shall have no further obligations to the seller for the approved invoice amounts (and may confirm transfer of rights or obligations) for which early payment has been received.

• The technique is ‘buyer-centric’ in that the buyer typically arranges a Corporate Payment Undertaking programme with one or more finance providers in favour of its sellers.
• The buyer may encourage its sellers to consider the use of this Corporate Payment Undertaking programme; the sellers however make an independent decision to participate in a Corporate Payment Undertaking programme.
• The buyer identifies invoice(s) for which it instructs (subject to agreed terms and conditions) the finance provider to pay the confirmed invoice on its due date and for which it gives the finance provider an unconditional and irrevocable commitment to pay an approved amount on the confirmed invoice due date(s).
• The seller has the option to request from the finance provider an early payment at a discount.
• The finance provider relies on the creditworthiness of the buyer and typically offers early payments of approved invoices ‘without recourse’ to the seller. Such ‘without recourse’ terminology relates to the risk of non-payment by the buyer of the approved amount at the confirmed invoice due date.
• The finance provider typically has discretion to offer early payment on terms or not (i.e. on an uncommitted basis).
• It is possible that certain elements of recourse are retained against the seller, such as for breaches of representations and warranties, but this will depend on what arrangement is put in place between the finance provider and the sellers. However, the corporate payment undertaking given by the buyer is unconditional and irrevocable and as such significant reliance on rights of recourse to the seller should not be a feature.
• The buyer will pay the approved amount at the confirmed invoice due date, such payment made directly to the finance provider pursuant to the corporate payment undertaking. If there are any commercial disputes or other dilution events between the buyer and seller, it would usually be resolved outside of this corporate payment undertaking structure (given the unconditional and irrevocable nature of the payment undertaking) although the structure may accommodate credit notes and offsets against invoices due for payment (but not yet paid).
• Approved invoice amounts that have not been paid on an early discount basis may be processed on a pay when paid basis by the finance provider – that is, finance provider being in receipt of relevant funds from the buyer to be paid on the relevant confirmed invoice due date.

• A service agreement, which could take the form of an accounts payable management arrangement, is entered into between the finance provider and the buyer.
• This service agreement will contain a confirmed corporate payment undertaking by the buyer agreeing unconditionally to pay, on the invoice due date, the approved amounts relating to those approved invoices that have been submitted to the finance provider.
• Notification to and/or acknowledgement/agreement by the seller and finance provider of discount arrangements allowing for early payments to the seller, which may include terms for acceptance of discounted early payment as full payment of the approved invoice amount; terms may also cover, for example, seller’s election for receipt of early payments via a manual, automated or semi-automated process. If required by the finance provider, the arrangements between seller and finance provider will include terms of use of any electronic platform and relevant representations or warranties given by the seller.

There is no additional security arrangement between the finance provider and the buyer or seller to protect the finance provider from buyer non-payment risk. The corporate payment undertaking is intended, subject to relevant jurisdiction specific legal advice, to serve as a contractual mechanism (unconditional and irrevocable undertaking) to institute a legal claim against the buyer in the event of non-payment. Traditional forms of security such as a parental guarantee in support of the buyer’s obligations might be available in transaction-specific circumstances.

Relevant risks and mitigants include the following:

• Buyer non-payment risk mitigated by completing standard credit analysis / risk assessment at on boarding and continual monitoring
• Seller commercial disputes and/or other dilution events may be handled by credit notes and offsets against invoices due for payment (but not yet paid); the risk this could otherwise pose to the finance provider is mitigated by the corporate payment undertaking
• Appropriate KYC/AML and/or compliance review on the buyer and risk-based checks on the seller, handled during the on-boarding procedures and subsequent post-transaction reviews
• Risk of double financing is mitigated by any relevant contractual warranties and/or representations and can also be mitigated by finance provider’s due diligence review(s)
• Pre-existing security arrangements entered into by or affecting the seller; the risk this could otherwise pose to the finance provider is mitigated by relevant contractual warranties and/or representations and the corporate payment undertaking
• Lack of corporate or signing officer authority, mitigated by appropriate due diligence following the finance provider’s relevant internal procedures

All the above risks are also mitigated by a robust monitoring, reporting and audit process regarding transactions, systems and controls.

• The buyer will usually have established a Corporate Payment Undertaking programme with the finance provider(s) which aims to provide benefit to all or a sub-set of its sellers.
• The seller(s) and finance provider(s) will typically communicate with each other in relation to the basis for provision of early payments and on-boarding procedures, including any relevant KYC/AML and risk-based checks.
• Whilst uncommon, in some instances the finance provider may purely act on instruction of the buyer (without interaction with the seller(s)) in which case it is for the buyer to ensure seller(s) has/have sufficient information to understand and accept why the buyer has instructed the finance provider to make a discounted early payment to such seller(s).
• The key ‘trigger’ for the provision of early payments is the corporate payment undertaking given by the buyer confirming approved invoice amounts.
• Partial early payment of an approved invoice amount would be unusual.
• The process may be manual, semi-manual or automated.
• Electronic invoicing may play a vital role since it will usually accelerate invoice approval and the ability for the seller to promptly receive early payment.
• The seller has the option to receive full payment of the confirmed invoice on its due date or to request an early discounted payment.
• The buyer makes payment in full of the approved invoice amount to the finance provider at the confirmed invoice due date.

May be a feature of such transactions or programmes and achieved through funded or unfunded risk participations, securitization, syndications, or by means of credit insurance.