Figures from the New York Fed are balances outstanding, not sale prices. Bands cited from DebtMarket’s pricing study are conversation ranges, not offers. This note is education for operating companies and creditors. It is not legal advice.
A spot sale is one pool, one cut-off, one wire. A forward flow is an agreement to sell future charge-offs that meet written rules, on a calendar, at a price grid. Creditors choose a flow when the monthly charge-off volume is steady enough to describe. They choose a spot sale when they want a warehouse gone.
Terms that belong in the first draft
| Term | Write it as a fact |
|---|---|
| Eligibility | Product, days past charge-off, minimum balance, and states. |
| Price | Percent of face by segment, not one number for every account. |
| Rejects | What the buyer may send back, and by which day of the month. |
| True-up | Payments and reversals between cut-off and funding, by account ID. |
| Media | The percent required, and the cure if a month falls short. |
Why the first month is the test
The first delivery shows whether the seller’s system can produce the same file the term sheet described. A flow that needs a new definition of “eligible” every month is a spot sale in disguise. Buyers price that uncertainty by widening the spread or by refusing the second month.
After each funding, the seller forwards that month’s debtors and does not keep servicing them. The 90-day warranty on this desk starts after closing and funding for the accounts in that delivery, and it lasts 90 days.
The short comparison is the sale structure tool. The longer guide is forward flow agreements.
A month that should be rejected in part
The grid says charge-offs between 30 and 90 days, bankcard only, balances over $100. The May file includes 400 retail-card accounts and 200 accounts charged off 200 days ago. Those rows are rejects, not a reason to reprice the eligible rows. Write the reject deadline in days, and require the seller to send the rejects back with account IDs so the next month does not repeat them.
Put the year on one grid
A forward-flow agreement is a series of sales, not a promise to negotiate each month from scratch. The first draft should already state the product, the charge-off window, the monthly face cap, the price as a percent of unpaid principal, the reject reasons, and the number of days the buyer has to reject a delivery. “Up to $2 million a month of bankcard accounts charged off within 60 days, at an agreed percent, with rejects named within ten business days” is a grid. A monthly phone call that resets the product is an open negotiation wearing a flow’s name.
| Term | Write it as |
|---|---|
| Product | One code. Bankcard stays bankcard |
| Window | Charge-off age in days, minimum and maximum |
| Volume | A cap. A short month under the cap needs a sentence that says so |
| Price | Percent of unpaid principal at that month’s cut-off |
| Rejects | Reasons, deadline in days, and a return file of account IDs |
Each month has its own cut-off and its own funding
The May delivery has a May cut-off. Payments after that cut-off are a May true-up. The 90-day warranty for those accounts starts after the May closing and funding, not on the May cut-off date. June is a separate closing. After each funding, the seller forwards debtor communications on the accounts that funded and does not keep servicing them. Accounts that fail the grid are rejects. They go back with IDs so the next month does not include them again. The date rules are the same ones on cut-off, closing, and funding. The short version of spot versus flow is the sale structure tool.