The Accounts Receivable Purchase Agreement is a crucial financing instrument in Pakistan's business environment, enabling companies to monetize their accounts receivable and access immediate working capital. This document is typically used when businesses seek to improve their cash flow position without traditional borrowing, or when they want to transfer the credit risk of their receivables to a third party. The agreement must comply with Pakistani legal requirements, including the Contract Act 1872, Banking Companies Ordinance 1962, and relevant financial regulations. It details the purchase mechanism, pricing, risk allocation, operational procedures, and rights and obligations of all parties involved. The document is particularly relevant in scenarios where companies have substantial receivables from creditworthy customers and need to optimize their working capital cycle.
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1. Parties: Identification of the Seller (original creditor) and Purchaser (factor/buyer) with full legal names and details
2. Background: Context of the transaction, nature of the Seller's business, and purpose of the agreement
3. Definitions: Comprehensive definitions including Eligible Receivables, Purchase Price, Cut-off Date, Collection Period, etc.
4. Purchase and Sale: Core transaction terms, including sale mechanism, true sale provisions, and pricing formula
5. Eligibility Criteria: Specific criteria that receivables must meet to be eligible for purchase
6. Purchase Price and Payment: Calculation method, payment timing, and any adjustments or reserves
7. Representations and Warranties: Seller's representations regarding receivables, business operations, and authority
8. Covenants: Ongoing obligations of both parties, including reporting and operational requirements
9. Collections and Servicing: Process for collecting receivables, remittance of collections, and servicing arrangements
10. Events of Default: Circumstances constituting default and consequences
11. Remedies: Rights and remedies available upon default or breach
12. Term and Termination: Duration of agreement, renewal provisions, and termination rights
13. Governing Law and Jurisdiction: Pakistani law as governing law and jurisdiction provisions
14. Miscellaneous: Standard boilerplate provisions including notices, amendments, and assignment
1. Security Arrangements: Optional section for additional security or guarantees, used when credit enhancement is required
2. Foreign Exchange Provisions: Required when dealing with international receivables or cross-border transactions
3. Electronic Trading Platform: Needed when parties use an electronic platform for receivables trading
4. Credit Insurance: Include when receivables are covered by credit insurance
5. Backup Servicing: Required when a backup servicer is appointed for continuity
6. Islamic Finance Compliance: Required for Shariah-compliant receivables purchase structures
7. Data Protection: Detailed privacy provisions when dealing with sensitive customer information
8. Multilateral Netting: Used when multiple related entities are involved in cross-receivables arrangements
1. Schedule 1 - Form of Purchase Notice: Standard form for offering receivables for purchase
2. Schedule 2 - Eligibility Criteria Details: Detailed list of criteria for acceptable receivables
3. Schedule 3 - Purchase Price Calculation: Detailed formula and examples of price calculation
4. Schedule 4 - Operational Procedures: Detailed procedures for daily operations and reporting
5. Schedule 5 - Form of Debtor Notification: Template for notifying debtors of the assignment
6. Schedule 6 - Approved Debtor List: List of pre-approved debtors whose receivables can be purchased
7. Appendix A - Required Reports: Templates and specifications for required reporting
8. Appendix B - System Specifications: Technical requirements for electronic interface if applicable
9. Appendix C - Service Level Agreement: Detailed service levels for collection and reporting
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