Prepayment percentage meaning

Prepayment percentage (also called the advance rate or prepayment rate) is the proportion of the notified value of each approved receivable (approved debt/invoice) that a receivables purchaser or financier will advance upfront before collection. It is a commercial, contract-driven term used across receivables purchase agreements, factoring agreements, invoice discounting and supply chain finance, and is not defined by statute or case law. Usage is broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland. The percentage is applied to the notified value (typically the face value as notified by the seller, subject to the agreement) to set the initial prepayment or purchase price advance. The unpaid balance is retained as a reserve and is paid (less fees, chargebacks and dilutions) when collections are received. Key features: - Set out in the facility or receivables purchase agreement and may vary by debtor, sector, currency or ageing. - Subject to eligibility criteria, concentration limits, reserves and dilution/dispute risk. - Commonly adjustable at the purchaser’s discretion or on trigger events (for example, covenant breach, credit deterioration or performance issues). - Does not remove recourse where the arrangement is with recourse, and operates alongside assignment/perfection mechanics.