Many Originators with Invoice Discounting/Factoring [IDF] ask Credebt Exchange® to Buy-Out their contract so that they can completely dispense with their current provider. The current IDF provider owns the Debtor ‘book’ because they have advanced money to the Originator based on the total Face Value of all the invoices in that book. To conduct a Buy-Out, the Originator must agree the Buy-Out price with the IDF provider and then asks Credebt Exchange® to pay it.
As the new owner of all of the invoices in that book, Credebt Exchange® treats them as if they were original Exchange Traded Receivables [ETR], purchased under a Revolving Sale Agreement [RSA]. All invoices/ETR that are purchased using an RSA are bought at the Purchase Price specified in the RSA. The Purchase Price is based on the Face Value of the ETR less the applicable monthly Discount. The difference between the Purchase Price paid for an ETR on the date that it is purchased and the final amount paid to the Originator when the invoice/ETR is Settled (i.e. paid in full), is called the Reserve.
Taking an example of an Originator being charged 1.000% interest per month on a book valued at 1.0m, the IDF provider may have lent 60%, or 0.6m, of its value to that Originator. The Originator subsequently agrees an RSA with Credebt Exchange® with a Purchase Price of 90% and a monthly Discount of 0.875%. The Originator asks Credebt Exchange® to Buy-Out the current IDF provider, by paying the total amount outstanding, plus other fees that the IDF provider may request (e.g. interest, service and other charges). For the illustrative purposes, let’s assume that the total Buy-Out cost is agreed at 622,000.
| Description | IDF Provider | Credebt Exchange® | |
| Total Book Value | 1,000,000 | 1,000,000 | |
| Amount lent | 600,000 | ||
| Interest Fees, etc | 22,000 | 15,750 | |
| Sub-Total | 622,000 | ||
| RSA | 900,000 | ||
| Balance/Reserve | 340,000 | 100,000 | |
| Interest | 22,000 | 15,750 | |
| Originator Total | 978,000 | 984,250 |
The Buy-Out payment to the IDF provider is 622,000 or 62.2% of the value of the Originator book worth 1.0m. However, under the terms of the RSA, the Purchase Price is 90%, so the there is a difference of 27.8% between the RSA Purchase Price of 90% and the 62.2% lent by the IDF provider (and paid by Credebt Exchange®). This difference of 27.8% is placed in the Reserve for each of the ETR purchased from the IDF provider. Payment of the 27.8% is added to the Reserve amount payable to the Originator as each ETR is Settled.