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A receivables purchase agreement (RPA) is a type of financing that allows a company to sell its accounts receivable to a third party in exchange for cash. This provides immediate access to working capital, which can be used to cover operational expenses or invest in growth initiatives. RPAs are commonly used in industries with long payment cycles or seasonal fluctuations, such as manufacturing, transportation, and construction.

How does an RPA work?

When a company enters into an RPA, it agrees to sell its accounts receivable at a discount to a financial institution (the buyer). The buyer provides the company with cash upfront, typically up to 90% of the face value of the receivables. The buyer then assumes the responsibility of collecting payment from the company`s customers and deducting its fees before remitting the balance to the company.

The fees associated with an RPA vary depending on the creditworthiness of the company`s customers, the length of the payment cycle, and the risk involved in collecting payment. Typically, the buyer charges a discount fee, which is a percentage of the face value of the receivables, and an interest rate on the amount of cash advanced to the company.

Advantages of an RPA

One of the main advantages of an RPA is that it provides immediate cash flow to the company without adding debt to its balance sheet. This can be especially valuable for companies that are growing rapidly or have seasonal fluctuations in revenue. Additionally, the company does not have to worry about collecting payment from its customers, which can be time-consuming and costly.

Another advantage of an RPA is that it can improve the company`s credit rating and borrowing capacity. Since an RPA is secured by the company`s accounts receivable, it is viewed as a lower risk to lenders than unsecured debt.

Disadvantages of an RPA

One of the main disadvantages of an RPA is the cost. The fees associated with an RPA can be higher than other types of financing, such as traditional bank loans or lines of credit. Additionally, the company may lose some control over its accounts receivable, as the buyer assumes responsibility for collecting payment from customers.

Another disadvantage of an RPA is that it may not be a good fit for companies with a high percentage of customers with poor credit ratings. Buyers may be unwilling to purchase receivables from customers that are considered high risk, which could limit the amount of financing available to the company.


An RPA can be an effective way for companies to access working capital and improve their cash flow. However, it is important for companies to carefully consider the costs and risks associated with this type of financing before entering into an agreement. Working with a reputable financial institution and conducting due diligence on potential buyers can help mitigate these risks and ensure a successful partnership.