Block Discounting Master Agreement

A block discounting master agreement (BDMA) is a contractual agreement between a borrower and a lender that enables the borrower to obtain financing from the lender by selling in blocks its receivables, which are typically in the form of invoices for goods or services provided to customers.

The BDMA is a popular financing option for businesses that need access to working capital, as it allows them to receive cash for their outstanding invoices before the payment due date. This is particularly useful for businesses that have a long payment cycle, as it can help alleviate cash flow issues and enable them to continue operating.

The BDMA works by the borrower arranging for the sale of its receivables to the lender, who then advances a certain percentage of the face value of the receivables to the borrower. This percentage is typically around 70-90% of the invoice value, with the remainder retained by the lender as security against potential defaults or other risks.

The borrower is then responsible for collecting payment from the customer on the due date, and passing this payment on to the lender. Once the lender has received the full amount owed, it will release the remaining balance of the invoice value to the borrower, less an agreed upon fee for the financing.

There are a number of benefits to using a BDMA for financing, including improved cash flow, reduced risk from bad debt, and increased flexibility in managing cash flow and working capital. Additionally, with the growth in online invoicing and other digital payment systems, BDMA financing is becoming increasingly accessible to small and medium-sized businesses.

Overall, a block discounting master agreement can be a valuable tool for businesses looking to improve their cash flow and access working capital, and can provide a secure and reliable financing option in an increasingly digital business environment.

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