GLOSSARY
True Sale
A factoring or receivables sale that legally transfers ownership of the receivable from seller to funder, removing it from the seller's balance sheet. The opposite of a recourse loan secured by receivables.
A true sale of receivables means legal title transfers from the seller to the funder, with no implicit recourse if the buyer fails to pay. Under IFRS 9 and US GAAP, a true sale lets the seller derecognise the receivable from its balance sheet and recognise cash. A "sale" with full recourse is treated as a secured borrowing — the receivable stays on the books.
Why it matters
For an exporter with a covenant-light credit facility, true-sale factoring can release working capital without consuming covenant headroom. For one with bank-disciplined balance-sheet metrics, it's how DSO compresses without drawing on a line of credit. The difference between true-sale and recourse factoring is usually the difference between 120 and 180 basis points of pricing.
Related terms
- Factoring
- Recourse vs Non-recourse
- IFRS 9 Derecognition