Securitisation of Receivables Under English Law

Turning “I owe you” into “Thank you very much”

Receivables securitisation is one of those things that sounds terribly niche until you realise it’s quietly powering everything from mortgage markets to mobile phone bills. It’s the financial equivalent of a backstage crew – unseen, underappreciated, but essential if the show’s going to go on.

In this article, we look at how receivables can be turned into structured finance magic under English law – what counts as a receivable, why anyone would want to securitise one, and how to avoid the classic legal missteps (like forgetting that some contracts don’t like being handed around like a tray of biscuits).

What is a receivable?

Or, why your unpaid invoice might be more exciting than it looks.

At its core, a receivable is a right to be paid – usually because someone bought something, received a service, and is now paying with the speed and enthusiasm of someone taking up cold water swimming in the middle of winter. In legal terms, it’s a contractual right to payment: not quite cash, but close enough that lawyers and accountants start getting ideas.

Receivables are choses in action under English law – intangible assets that you can’t touch, but which you can enforce (usually by writing a firm letter and possibly wearing a suit). They’re assignable, transferable, and form the raw material for many structured finance transactions.

Why securitise them?

Because cash now is better than cash eventually.

Receivables sitting on a balance sheet are like biscuits in a tin – nice to have, but not much use until you open the lid. (Gosh, biscuits on the brain today. Must be nearly elevenses.) Securitisation lets a business package up those future payments and sell them to a special purpose vehicle (SPV), which then issues securities backed by the receivables.

Done correctly, this gives you:

• Liquidity – Cash in the door without waiting for everyone to pay up.
• Off-balance-sheet treatment – If it qualifies as a “true sale,” the receivables can disappear from your balance sheet like magic (with appropriate legal opinion, of course).
• Risk transfer – Let the investors take the credit risk. You’ve got enough on your plate.
• Lower funding costs – Receivables are often better collateral than your good name alone.
• Capital relief – For banks and regulated firms, securitisation can reduce capital requirements. Always a hit with the risk team.

What kind of receivables can be securitised?

In principle, if someone owes you money and the contract lets you transfer that right, you’re off to a good start. But to be securitisation-ready, receivables should also be clearly identifiable, contractually assignable, and backed by reliable payment data.

Here are some familiar categories:

• Trade receivables – Everyday business invoices. Bread and butter stuff.
• Consumer receivables – Credit cards, car loans, personal finance. Often seen in retail-heavy securitisation deals.
• Mortgage receivables – Loans secured on property. These are typically pooled together and used to back securities like Residential Mortgage-Backed Securities (RMBS) or Commercial Mortgage-Backed Securities (CMBS), depending on whether the properties are homes or office blocks.
• Lease receivables – Equipment or vehicle leases, paid off in bite-sized monthly chunks.
• Utility receivables – Gas, electricity, water bills. Not glamorous, but dependable.
• Subscription receivables – Streaming, broadband, mobile contracts. The regular monthly payments make them especially attractive, thanks to the “stickiness” of customers who tend to stay subscribed rather than cancel.
• Public sector receivables – Government or local authority payment obligations, often under long-term infrastructure arrangements like PFI.
• Insurance premiums and claims – Receivables owed by policyholders or due from reinsurers, depending on the structure.

The golden rule? If the cashflow is steady, contractually sound, and legally transferable – it’s likely a candidate.

How do you transfer receivables to an SPV?

There are two main routes: one gets you the full legal package, the other gets you 80% of the way there and a to-do list for later.

1. Legal assignment (Section 136, Law of Property Act 1925)

To transfer legal title to the SPV (so it can enforce the receivables in its own name), three things need to happen:

• The transfer must be in writing.
• It must be an outright transfer – not just a security interest.
• Notice must be given to the debtor.

Get all three right, and the SPV holds legal title – job’s a good’un.

2. Equitable assignment

If you miss one of the above (usually the debtor notice), then you’ve still got a valid transfer – but only in equity. That means the SPV has rights, but the seller may need to stay involved if any enforcement is required.

This approach is common early on in deals. Notifying every customer that their payment is now going to a mystery SPV tends to dampen the mood, especially in revolving deals where receivables are constantly being added to the pot.

What if you’re not selling the receivables?

Not every structure calls for a sale. In some cases – particularly in secured lending – receivables aren’t sold at all. Instead, they’re pledged as collateral, which means the lender has a claim over them if things go south.

There are two main flavours of security:

• Fixed charge – Stronger in an insolvency, but it comes with strings attached. The lender needs control over the receivables and any payments they generate, which usually means the borrower can’t do much without getting the lender’s nod first.
• Floating charge – More hands-off during day-to-day operations, but it ranks lower in the queue if the borrower ends up in administration. Flexible, yes – but a bit riskier.

Whichever route you take, the basics still apply. Get it properly documented, register the charge at Companies House, and make sure the underlying contracts don’t contain any nasty surprises – like clauses that block charges or assignments.

A few legal wrinkles to iron out

Even the most elegant securitisation can stumble if the legals aren’t lined up. Here are some of the usual suspects to watch out for:

True sale

The holy grail of securitisation. If you want off-balance-sheet treatment – and investors who don’t break into a cold sweat – you need the receivables to be actually sold, not just dressed up. That means transferring economic risk and control, not just slipping some clever wording into a schedule and hoping no one asks questions.

Set-off and defences

Just because someone owes you money doesn’t mean they’ll pay the full amount. If the debtor has a counterclaim or thinks you’ve wronged them somehow, they might decide to deduct what they’re “owed.” This can chip away at the value of your receivables. Best to spot these early and handle them through warranties, exclusions, or credit enhancement – before your investors do the maths.

Anti-assignment clauses

Some contracts say you can’t assign them without permission – and they mean it. These clauses can be deal-breakers in a securitisation, and unlike most things in structured finance, there’s no elegant workaround. You’ll need to review the underlying contracts with care, and if consent isn’t on the table, consider alternative approaches like risk participations or simply leaving those receivables out of the pool. Not ideal, but better than building a structure on quicksand.

GDPR and operational risk                        

If your receivables relate to consumers, chances are you’re dealing with personal data. That means the General Data Protection Regulation (GDPR) gets involved, whether you like it or not. You’ll need to have proper consents, tight processes, and systems that don’t fall over when someone requests their data be deleted.

The Last Word (other than “read the contract”)

Receivables securitisation is one of the most versatile tools in the structured finance toolbox. It turns a business’s existing assets into cash, helps manage risk, and – when structured properly – doesn’t need to sit on the balance sheet.

But as with any structure that involves law firms, spreadsheets, and three-letter acronyms, the devil is in the documentation. Get the legal bit right, understand the assets, and you might just find that “money owed” becomes “money received” a lot sooner than expected.