Assignment of Debt

Assignment of debt is the legal mechanism by which a creditor transfers their right to receive payment from a debtor to a third party, known as the assignee. In invoice finance, this is how the arrangement works: when you sell or assign an invoice to a factor or discounting provider, you are legally transferring your right to collect that payment to the finance provider.

In the UK, a legal assignment must satisfy specific requirements under the Law of Property Act 1925: it must be in writing, the debtor must be notified, and the assignment must be absolute (not conditional). Factoring arrangements typically involve legal assignment with debtor notification. Confidential invoice discounting typically uses an equitable assignment without customer notification.

Understanding assignment is important because it determines who has legal priority to receive payment and what happens in the event of a dispute or insolvency. A properly documented assignment gives the finance provider security over the invoiced amount.

Example

A recruitment agency assigns its right to collect a £50,000 invoice from its client to an invoice factoring provider. The factoring company advances 85% immediately and collects the full £50,000 from the client at the due date.

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