True Sale
A true sale is a transfer of receivables structured so that ownership genuinely passes to the buyer, rather than the transaction being recharacterized as a secured loan. In a true sale the assets leave the seller's estate, so if the seller goes bankrupt the buyer's receivables are protected. It is the legal foundation of bankruptcy-remote factoring and securitization.
What makes a sale a true sale
Whether a court treats a transfer as a true sale depends on substance, not the label: who bears the risk of non-payment, whether the price was fixed and final, whether the seller kept control or a right to repurchase, and how the parties accounted for it. The more the buyer truly takes on ownership and risk, the more likely it is a true sale.
True sale vs secured loan
The opposite is recharacterization: a court treating a purported sale as a secured loan where the receivables are collateral still owned by the seller. The distinction is decisive in bankruptcy, a true-sale buyer owns the receivables; a recharacterized buyer is just a secured creditor of the bankrupt seller.
How factors structure for it
Factors reinforce true-sale treatment with clear assignment language, non-recourse or limited-recourse terms, market pricing, a UCC filing, and often a notice of assignment. The reconciliation and verification behind invoice factoring also evidences the buyer is managing what it bought, which Zolvo automates for factoring.