Transfer of claim: a strategic move for your company

Assignment is the legal transfer of a claim: you transfer the right to collect an invoice to another party, for example to receive funds immediately or to reduce the risk of non-payment. It can improve your cash flow, but requires a written deed, a clear description of the claims, and a check to ensure the claim is transferable. Below, you can read how assignment works and what to look out for.

What is assignment?

Assignment is the transfer of the right to collect a debt. That right passes from the original creditor (the assignor) to a new creditor (the assignee). The assignee may subsequently collect the debt from the debtor (the cessus). Assignment has two forms:

• Public assignment: the debtor is notified (notification) and must subsequently pay the new creditor.
• Silent assignment: the transfer is recorded without the debtor being immediately informed; this form requires a registered or notarial deed.

Why do companies choose assignment?

A company may have rosy financial statements while cash flow is tight, for example due to many outstanding invoices. Assignment offers a solution in such cases. Common reasons:

• Immediate liquidity: you receive funds quickly instead of waiting for payment.
• Reduced risk of non-payment: you transfer (part of) the risk of non-payment to the acquirer.
• Less administration: you save on the burdens and costs of debt collection and can focus on your core activities.

Selling receivables to a factoring company is a well-known example of this.

What should you look out for regarding an assignment?

• Written deed: the assignment must be recorded in a deed.
• Determinability: it must be sufficiently clear which claims are being transferred. If the deed does not meet this determinability requirement, the transfer may be invalid.
• Ancillary rights: take into account the ancillary rights, such as securities, which in principle transfer with it.
• Transferability: check whether the claim is contractually transferable. Some contracts restrict or prohibit transfer by means of a non-transferability clause.

Advantages and disadvantages of assignment

Assignment improves cash flow and limits risks, but it also has disadvantages:

• Advantage: quick liquidity, fewer collection worries, lower administrative burden.
• Disadvantage: you typically receive only a percentage of the nominal value — a loss of potential income.
• Disadvantage: potential damage to relationships with customers, for example if the new creditor handles collection aggressively.

Frequently asked questions about assignment

What is the difference between assignment and factoring?

Assignment is the legal transfer of a claim. Factoring is a service whereby a factoring company (partially) acquires your claims and handles debtor management — often legally structured via assignment. Factoring is therefore an application of assignment in an ongoing partnership.

Do I need to inform my client about the assignment?

In the case of a public assignment, this is true: the debtor is only required to pay the new creditor after notification. In the case of a silent assignment, notification is not immediately necessary, but the debtor can continue making payments to you in a way that discharges the debt until he hears of the transfer.

Can every claim be transferred?

Not always. A contract can restrict or exclude transfer through a non-transferability clause. Whether such a clause has effect under contract law only or actually makes transfer impossible depends on the wording. Have this checked in advance.

Have a deed of assignment drawn up

Assignment involves legal nuances that determine its validity. The legal experts at MKB Juristen advise on feasibility and draft a watertight deed of assignment that meets all requirements and protects your interests. View our expertise in corporate law or schedule a no-obligation intake.