A/R Finance & Factoring Terms GLossary

What isSubordination Agreement

A Subordination Agreement is when a creditor is placed in a lower priority for the collection of its debt from its debtor’s assets than the priority the creditor previously had. In common parlance, the debt is said to be subordinated but in reality, it is the right of the creditor to collect the debt that has been reduced in priority. The priority of the right to collect the debt is important when a debtor owes more than one creditor but has assets of insufficient value to pay them all in full at the time of default.

Paragon will sometimes enter into a subordination agreement with banks and other lenders so clients can enjoy higher cash flow by unlocking the value in their Accounts Receivable. Paragon can also enter into a subordination agreement with taxing authorities to facilitate funding companies with Tax Issues.

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