THE DANGER OF TRANSFERRED SUPPLIER INVOICES

It is not uncommon for suppliers to sell their invoices to various financial companies. Especially if the economy gets worse, this can be a good way for a supplier to keep his liquidity under control.

As a customer, however, there is a danger in approving the transfer to a finance company, as it risks entailing that you are cut off from your right to set off a counterclaim against the supplier. If the supplier also has poor finances, this can mean that you are completely cut off from the possibility of claiming, for example, price reductions. The financial companies often make use of so-called "cut-off" contracts which mean that you as a customer undertake to pay unconditionally.

Example.

Company A sells a batch of car tires to Company B. When the tires arrive, the number is checked against the delivery note by Company B. When reviewing the tires, they appear to be of the agreed quality. Shortly after the car tires have been delivered, an invoice is sent by email from Company A, which, however, sold the invoice to Finance Company F. Company B is asked to approve the transfer and to unconditionally pay to Finance Company F, which Company B's CEO does electronically.

However, since Company B started fitting the tires, it turns out that all tires are leaking due to a manufacturing error. Company A has now been declared bankrupt.

Even though the tires are faulty, Company B is forced to pay Finance Company F in full, and cannot claim the bankruptcy estate because it has no assets.

The meaning of the "cut off" obligation is therefore that it cuts off Company B from the right to object to Financial Company F against its payment obligation by invoking errors, deficiencies or counterclaims in the underlying contractual relationship between Company A and Company B. Company B must therefore pay the invoices even though the tires were faulty.