Selling instruments of indebtedness

What is an instrument of indebtedness?

More information for investors.

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An instrument of indebtedness is an enforceable title and thus a legal order. This means judgements, decisions or a writ of execution. With this payment by the debtor can be demanded and if necessary foreclosure can be initiated. Before a writ of execution can be obtained, a judicial default action must first be conducted. If within 14 days following this default action payment is not made and no objection is lodged, enforcement can take place. This occurs as a rule through a bailiff. The basis for this default action is always an open receivable that is not appropriately paid.

What does it mean when an instrument of indebtedness is sold?

It is possible to sell an instrument of indebtedness or an enforcement order. There are companies which specialise in this. Among others are factoring companies or debt collecting agencies. The creditor can contact these companies and sell the title or the enforcement order. The company will submit a corresponding offer. If only a receivable is sold when an enforceable title already exists, it is indeed possible. The selling of receivables when they are not yet due or have recently become due is however considerably more advantageous since the fees that are thereby incurred in the early stages are not so high. An assignment of claim is nevertheless possible at any time. If you wish to sell the instrument of indebtedness the receivable is, in the case of genuine factoring, transferred in full to the company. That means that the default risk is taken over by the factoring company. Nevertheless, a company that decides to transfer a receivable at a late stage has benefits. An enforcement measure is always associated with trouble and expense and ties up employees who could be better and more effectively employed elsewhere. It is ideal, in the case of a transfer of a receivable for the money from the  factoring company, to be paid directly to the present creditor. Consequently, the former creditor is once more solvent, credit ratings are in order and the money can be invested.

Who can sell titles?
In principle, any firm that has entered into a contract with a customer, can sell a title. Excluded from this are freelancers such as writers or similar groups. These have no way of being able to sell receivables and must deal directly with a debt collecting agency, which can be instructed to pursue the debt. The prerequisite is a valid contract for a service to be performed. Many companies, in particular those with only a small staff, use these services nowadays, in order that their own capacity is freed up and they can concentrate fully on their core business and do not have to be involved in inconvenient default actions or enforcement measures. For these companies it pays dividends to incur the fees, required by the factoring company, when compared with the personnel costs for a sometimes long process. 

What instruments of indebtedness can be sold?

If a receivable is subject of a successful application for an instrument of indebtedness, this can of course be sold. A receivable always exists when a debt results on the basis of a contract. An instrument of indebtedness is then obtained when the receivable is not settled and a judicial default action has also been unsuccessfully conducted. As a result, an instrument of indebtedness is obtained, which the creditor can then sell. Instruments of indebtedness can be obtained for any receivable with a valid contract and thus can also be sold. The sale of receivables is just as possible as that of instruments of indebtedness. The sale is made to a factoring company, a debt collection agency or a bank. Any invoice can eventually become an instrument of indebtedness and thus be sold.

What advantages do the sale of an instrument of indebtedness offer?
The sale of an instrument of indebtedness involves considerable benefits. However these are all the greater the earlier a decision to sell is made, since the fees charged increase according to the state of the receivable. This is a result of the fact that the factoring company assumes a greater risk when it initially enters into a contract for an instrument of indebtedness. Genuine factoring has further benefits for the former creditor. The factoring company also takes on the default risk and pays the company for the receivable immediately. Thus the matter is settled for the present creditor and he can once more deploy his staff elsewhere and more usefully. Furthermore, in small companies, as a rule, no specialists are directly employed who understand in detail default and enforcement processes. That still ties up the staff more than when specialists are trusted with the work. In addition there is false factoring. This means that although an immediate payment is made by the factoring company to the present creditor, due to failure these payments are however again demanded. A major benefit, above all, is that the present creditor immediately has money available and is therefore once more solvent. His credit rating is also secured. Further, investment can be carried out for which perhaps the money required was not available. The staff can devote themselves to other things and once more work in their own field of responsibility.

What does Debitos recommend?
Debitos – the Secondary Debt Market is the recommendation! This is a platform which has been launched for buyers and sellers of receivables and instruments of indebtedness. Here this group of people has a way of connecting with each other and come to business agreements. The seller can enter his offer, either at a fixed price or at an auction price, starting from 1 Euro. The potential buyers can look at the offer and bid accordingly. This platform is the first of this type in Germany. No unnecessary digressions are required, here exactly the clientele you are looking for can be found. This online market is a gap that Debitos has filled successfully. Sellers can however only be of certain categories.  These are on the one hand banks and investors, and on the other hand factoring companies, debt collection agencies or lawyers. Predominantly standard factoring or genuine factoring is referred to. With Debitos this is the only possible process. Debitos charges fees for the opportunity to sell receivables. These are relatively low, making it worthwhile to register and transfer receivables in this way. The fees are only payable if the sale can be successfully concluded. The charge is 1% if the receivable is only due in the near future or was due recently. If an instrument of indebtedness already exists or Court proceedings have already been filed, the fee amounts to 9% of the proceeds of the sale together with a fixed fee in the amount of 15 Euros. The employees of Debitos are available to answer questions or supply information. You can contact us by telephone, on chat or by email.